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ni.5 




Book- .V\G4 - 



ECONOMICS I. 

A SYNOPSIS OF 

JOHN STUART MILL'S 

PRINCIPLES 

OF 

POLITICAL .-. ECONOMY. 



Economics I. 

A SYNOPSIS OF 

PRINCIPLES OF POLITICAL ECONOMY. 

(FIRST FOUR BOOKS) 

■ ^^^ ^^ 

AS REVISED TO DATE. / \x^v t\ 

WITH AN APPENDIX CONTAINING RECENT EXAMI- » N"^«^ 
NATION PAPERS IN ECONOMICS I. 



A CONVENIENT HAND-BOOK FOR PREPAR- 
ING THE WEEKLY WRITTEN 
QUESTIONS AND ALL 
EXAMINATIONS 



K 







j *-/ Cgpyricj-ht by Edw. W. Wheeler. 



^^ 



( Hb I8S2 / 

Caiitbribgc, |ttass. 

W. H. Wheeler, Printer, 

1892. 



f- 



^^ 






This Synopsis is intended to replace the text book in 
preparing for the examinations, and will also be found 
extremely useful during the year in answering the weekly 
written questions. The index at the end has been pre- 
pared especially for use in connection with the examina- 
tion papers contained in the appendix to this book. 



A SYNOPSIS OF MILL. 
VOL. L, BOOK I. 



PRODUCTION. 



L.H AFTER 1. 

REQUISITES OF PRODUCTION. 

1. Labor. — Bodily or mental. 

2. Appropriate natural objects. — Nature also supplies 
powers, p. 45-6. 

Labor in the physical world is always and solely employed in 
putting objects in motion ; the laws of nature do the rest. p. 49. 
It is impossible to decide that in any one occupation nature does 
more than in any other; or even that labor does less. If the 
two conditions are equally necessary for producing the effect at 
all, it is meaningless to say that so much is produced by one and 
so much by the other, p. 49-50. 

Of natural powers, some are unlimited, others limited 
in quantity, p. 50. 

As long as unlimited in quantitjs a natural agent cannot 
bear any exchange value, p. 52. 

The locality and circumstances must always be taken into con- 
sideration. 

Chapter II. 
LABOR AS AN AGENT OF PRODUCTION. 

The labor of which anything is the result is a complex matter. 
111. — The bread must suffice to remunerate farmer, plough-mak- 
er, builder, transporter, etc., etc. 53-4. 

The previous employment of labor is indispensible to every 
productive operation, p. 55. 



Remuneration founded on possession of food available for the 
maintenance of laborers, is remuneration for abstinence, not for 
labor, p. 57. 

Indirect labor : — 

1. In producing materials (miner, farmer, miller). 

2. In producing implements (oven maker). 

3. Yox protection (police). 

4. For transportation (teamsters, railway men). 

5. In training \\\x\x\^\x beings (teachers). 

6. Inventors (improvers of ovens and flues). 
Subsistence during operation — Capital. 

Chapter III. 
UNPRODUCTIVE LABOR. 

Labor is indispensible to production, but has not always pro- 
duction for its effect. Much very useful labor is unproductive, 
p. 71. 

1. Productive Labor Creates Wealth. 

2. Unproductive Labor does not create Wealth. 

It is hard to distinguish between productive and unproductive 
laborers, because much labor is indirect, p. 71. 
Utilities produced by labor are : 

1. Those employed in rendering external material things 
serviceable to mankind. This is the common case. 

2. Those fixed and embodied in human beings conferring 
qualities which make them serviceable to others, 
(teachers, moralists, etc.). 

3. Those consisting in mere service rendered (actors, 
soldiers, legislators, etc), p- 73-4. 

Wealth = material wealth. 

Productive labor = that which produces utilities embo 'icd n 
material objects, p. 76. 

Productive labor may be wasted, when more is expended 'lia 
is necessary to production, p. 79. 

Productive Consumption is the wealth cotu r v 
by productive laborers in keeping up, or improving ic 
health, strength, capacity for work, or in rearing pro 
ductive laborers. 



All their consumption bejond this is unproductive consump- 
tion. Some enjoyment is necessary to health, p, 80. 

Unproductive Consumption is the consumption of 
non-producers, and also the superfluous consumption of 
producers. 

No labor for the use of unproductive consumers tends to en- 
rich the community, p. 81. 

Only part of the product of a country is consumed produc- 
tivel}^ the rest supplies the unproductive consumption of pro- 
ducers, and the whole consumption of the unproductive class. 

WEALTH = I. Anything useful or agreeable and 
capable of being exchanged ; or 

2. Anything which is transferable, limited, and which 
satisfies a want or desire. 

The world consists of 

A. B. 

lers or unproductive laborers. Productive laborers, e.^. farmers 
- nproductive consumers. i. Those producing wealth for 

p.Si. productive consumption, i an- 

nual produce. 

2. Those producing wealth for 
unproductive consumption (a) 
i produce. 

Chapter IV. 
OF CAPITAL. 

CAPITAL is the accumulated stock of the produce of labor. 

83. 

What capital does for production is to afford the shelter, pro- 
tection, tools, and materials needed for the work, and also to 
feed and maintain the laborer during the process. 

Capital is saved wealth devoted to reproduction. 

84. 

Money only apart of capital and wealth. 

Not all capital is money. Not all wealth is capital. 



The conversion of wealth from an unproductive destination to 
a productive one causes more food to be appropriated to the con- 
sumption of productive laborers, p. 86. 

The distinction between capital and non-capital lies, not in 
the kind of commodities, but in the mind of the capitalist; varj^- 
ing as it is destined to productive, or non-productive uses. 

The tvkole of the capital of a cou?itry is devoted to produc- 
tion, ivith sofne limitatio7is. 

LIMITATIONS. p. 86. 

1. A fund may seek productive employment, but find none to 
suit the possessor. It is still capital, but unemployed capital. 

2. The stock may consist of unsold goods, not at the time 
marketable. It is then unemployed capital. 

3. A tax payable in advance may be levied. This necessitates 
a larger capital than is necessar^^o production, p. 86. 

4. Rent may be payable in^pfvance, similar to 3. 

5. All the capital paid as wages is not necessary for produc- 
tion. Some is expended, not in supporting labor, but in remun- 
erating it. Laborers could wait for remuneration. 

Abundant capital must have been accumulated to allow any 
remuneration of labor before production is finished, p. 88. 

See examples of capital and wealth on pages 89-90-91-92-93. 

Chapter V. 

FUNDAMENTAL PROPOSITIONS RESPECTING 
CAPITAL. , 

Industry is limited by capital, p. 94. 

Industry must have materials and food, both of these are the 
produce of past labor. 

Laborers consume what has been produced, not what is about 
to be. 

Although industry is limited by capital, it does not always 
reach that limit. Often capital cannot obtain as many laborers 
as it wants : e. g. in new colonies, p. 98. 

Government can create capital by laying taxes and 
employing the revenue productively, p- 97- 
, It may also use the revenue in paying the Public Debt. 



The fund-holder would still wish to have an income from his 
money, and so would invest it productively. 

Taxes are largely paid out of wealth destined to unproductive 
consumption, p. 97. 

Every increase of capital can give unlimited additional 
employment to industry. 

If human beings are capable of work, and when there is food 
to feed them, they may always be employed in producing some- 
thing, p. q8. 

It is a common error that the unproductive expendi- 
ture of the rich is necessary to the employment of the 
poor. p. 98. 

Employment is given to labor, not by the expenditure 
of w^ealth, but by capital. 



If a capitalist stops his unproductive consumption, he only 
transfers it to labor. 

When capitalists turn their income into capital, they do not 
destroy their power of consumption, but transfer it to a number 
of laborers. 

Either there is, or there is not, an increase of laborers pro- 
portionate to to the increase of capital. 

1. If there is : necessaries are produced for the new population 
instead of luxuries for the old, and this supplies exactly the 
amount of employment which was lost. 

2. If there is not: what was formerly expended in luxuries is 
now distributed among laborers as additional wages. They are 
already supplied with necessaries. The laborers now buy lux- 
uries. Thus the many have them instead of the few. p. 100. 

The limit of wealth is never deficiency of consumers, 
but of producers and productive power, p. 100. 

Every addition to capital gives labor additional em- 
ployment or remuneration. 

Laborers get more by the abstention of capitalists from 
unproductive expenditure, than by such expenditure. 

Capital is the result of saving, p. loi. 

The idea of saving implies the productive use of the sav- 



ings. Savings not destined to be used productively are merely ' 
hoarded, and are not capital, p. 103. 

Capital, although saved, and the result of saving, is ; 
nevertheless consumed. \ 

" Saving " does not imply that what is saved is not consumed, 1 
or that consumption is deferred; but that if consumed imme- 
diately it is not consumed by the saver. Part goes into tools and 
materials, and part into wages, p. 103. 

Saving enriches, and spending impoverishes, both the com- 
munity and the individual. 

Everything which is produced is consumed, botUwhat 
is saved and what is spent p. 107. 1 

The greater part of existing wealth has been produced in the i 
last year. Land is almost the only thing which subsists, p. 
108. 

This perpetual consumption and reproduction of cap- i 
ital explains the rapid recovery of countries devastated \ 

by war. \ 

1 
If the eftective population have not been extirpated or starved . 

afterwards, and if the lands and permanent improvements have \ 
not been seriously injured, a country can produce nearly as much 1 
as before. If the people have food enough to keep them in work- 
ing condition, the country will be as rich as before if they exert 
themselves ordinarily. Involuntary privation produces the same 
results as intentional abstinence, p. 109. 

Taxes are paid from unproductive consumption gener- 
ally, and are made up by increased economy. Govern- 
ment loans are drawn from capital and impoverish the 
country. 

Yet when loans are made, the country seems prosperous, the 
wealth and resources seem to increase, p. no. 

Suppose the whole amount borrowed and destroyed by the 
Government is taken from capital. It cannot be taken from fixed 
capital and must be taken from wages. Laborers will suffer, but 
if their working condition is kept up, their labor will produce as 
much as it would with higher wages. Their unproductive con- 



sumption is stopped. The employers gain what the laborers lose 
by diminished wages, and the breach in the capital of the country 
is repaired by the privations of the laborer, p. iio-iii. 

Dr. Chalmers says that when the Government needs 
money, it is better to lay taxes for the whole amount, 
rather than to make interest-bearing loans. 

Objection. When the whole amount is called for in i jear, 
the people cannot, without great hardship, pay it out of their 
yearly income. .*. It is better to require a small sacrifice j^early 
as interest, than a great one once for all. 

Answer. The same sacrifice is made in either case. All the 
wealth produced yearly forms part of somebody's income. By 
taking the amount needed as loans instead of taxes, the privation 
is not averted, but is thrown on the laboring classes who least 
ought to bear it. 

All the inconve?iiences caused by taxes for the perpetical pay- 
ment of interest are incurred in pure loss. 

Whenever the state withdraws capital from production, the 
whole sum is withheld from labor. The loan is paid oft' the same 
year, the sacrifice is actually made ; but it is paid to the wrong- 
persons by the worst of taxes (tax on laborers) and does not ex- 
tinguish the claim, p. 112. 

After having made the xvhole effort needed to fay the debt^ the 
country is still charged xvith it and its interest, p. 113. 

Objection. This statement is extreme. Loans are usually 
made from foreign capital which would not be brought in on less 
than Government security. In wealthy countries, loans are not 
made from native employed capital, but from accumulations 
which would otherwise have gone abroad, p. 113. 

Demand for commodities is not a demand for labor. 
It merely determines the direction of the labor, p. 114. 

The employment aftbrded to labor does not depend on the pur- 
.nasers, but on the capital. 

To set free capital, which would otherwise be locked up in a 
form useless for the support of labor, is same thing to interests of 
laborers as the creation of new capital, p. 118. 

Taxes on luxuries of the rich do not fall on the poor because 
of a lessened demand for commodities. 

When the taxes on the rich are paid out of what would have 
been wages, — 



lo 



1. If the Government buys labor, the tax does not fall on the 
poor. 

2. If the government dissipates it in war, it ceases to exist as 
capital, and less laborers can be employed, p. 125-6. 

Chapter VI. 

CIRCULATING AND FIXED CAPITAL. 

That part of capital, which, after being once used, 
exists no longer as capital, is called Circulating Cap- 
ital, e- g' materials and wages, p. 127. 

It is constantly parted with, is constantly renewed, and does 
its work by changing hands. 

That part of capital which consists of more or less 
durable instruments of production, whose efficacy is not 
exhausted by a single use, Is called Fixed Capital, 
e.g. implements, buildings, p. 128. 

This does its work by being kept. Capital sunk in perma- 
nent improvements of land is of this kind, as the cost of making 
docks, roads, and canals. Many kinds of fixed capital need to 
be renewed. 

All increase of fixed, at the expense of circulating 
capital, hurts the laborers, temporarily at least. 

Some say that machinery never injures the laborers. 

P- 133- 

Argument. By cheapening production it increases the de- 
mand for the commodity, and more persons are employed in pro- 
ducing it. True, often, because more capital of both kinds is em- 
ployed, p. 133. \ 

Objection. Laborers no better off by the transfer of cupii, 1 
from circulating to fixed. Laborers sufter in the industry whosv. 
fixed capital is increased. 

Argument. Equivalent employment is offered in otf^ier Indus 
tries to the labor thrown out of employment by machinery, be 
cause consumers save in the cheapened commodity enough to 
increase their demand for others, p. 134. 

Objection. A demand for commodities is not a demand for* 



II 



labor; no capital is set free to be employed in other industries. 

Improvements in production are seldom even tempor- 
arily injurious to labor, p. 134. 

If many iinprovements were made suddenh', the fixed capital 
would be drawn from the circulating. This would injure labor- 
ers. Improvements are introduced gradually by the use of an- 
nual increase. 

Great increases of Fixed Capital are always accompanied by 
corresp07iding increases of Circulating Capital. 

Even if improvements tended to diminish the aggi'egate pro- 
duce and circulating capital, by causing increased accumulation 
they would finally increase both. p. 136. 

Improvements tend to remove the limits of accumula- 
tion of capital and of increased production from land. 

Argument in favor of Machinery . 

The quantity of capital and the gross produce of a country 
are proportionate to the state of the arts of production there. 
Machinery makes room for a larger amount of both. p. 136. 

A stock of unsold goods, though destined to productive uses, 
is not capital in actual use. It must first be exchanged, and will 
become either fixed or circulating capital. 

Chapter VII. 

ON WHAT DEPENDS THE DEGREE OF PRO- 
DUCTIVENESS OF PRODUCTIVE 
AGENTS. 

The most evident causes of superior productiveness 

are, — 

[ a. Fertility of the soil. 

, ^ ^ ... ^ \ b. Favorable climate. 

1. Natural Advantages. < ^^. , 

^ I c. JVlmerals. 

1^ d. Good communication. 

In hot regions mankind needs less fuel, clothing, housing, 
food. Abundance of conveniently situated minerals is a great 



12 



advantage. A maritime situation or good navigable rivers, is a 
great advantage by saving the cost of carriage, p. 140-1-2. 

2. Great and habitual energy of labor, p. 143. 

3. The extant state of skill and knowledge, p. 145. 

The production of a people is limited to their knowledge of the 
arts; any improved application of natural forces enables the 
same labor to produce more; 

Want of good sense which makes laborers such bad calcula- 
tors, renders their labor less productive 

4. The moral qualities of the laborers, p. 149. 

e. g. The temperance, steadiness, trustworthiness of laborers. 

5. The security or completeness of the protection fur- 
nished by society to its members. 

Chapter VIIL 

CO-OPERATION. 

Habits of co-operation and division of labor form an 
important cause of superior productiveness. 

Simple Co-operation = the combination of several laborers 
to help each other in same employment. 

Complex Co-operation = the combination of several laborers 
to help one another in different employments by a division of 
operations, p. 156. 

Without separation of employments few things would be pro- 
duced at all, for if each person had to produce all he consumed, 
his wants would be few. p. 159. 

By division of labor a population is simulated to increase its 
production so that it can obtain luxuries, which it never could 
have obtained otherwise because it never could have produced 
them. The introduction of artificers among an agricultural 
population constitutes a market for surplus food. Their arrival 
enriches the settlement; («) by the manufactured articles ; (/^) 
by the increased production of food. p. 160. 

A country seldom has a productive agriculture T.vitJiout a 
large town populatio7i^ or a large export trade, p. 162. 

The farther the division of labor is carried the more produc- 
tive does it become. 



H 

(a) Because many undertakings require more capital than 
individuals could furnish. Government agencv is inexpedient. 

(i>) A more intellectual head can be secured. 

A large system is only advantageous when there is a large 
market. 

The operations of agriculture are little susceptible of benefit 
from the division of labor, p. 191. 

Such subdivision only is necessary as will occupv the time of 
the cultivators. 

The disadvantage of small, or of peasant farming, as 
compared with capitalist farming consists chiefly in in- 
feriority of skill and knowledge, p. 195. 

Where cultivator is the proprieior, the industry is unex- 
ampled. 

The one question remaining is the comparative rapidity of 
agricultural improvement under the two systems. This is 
greatest under a due admixture of both. p. 203. 

Chapter X. 
LAW OF THE INCREASE OF LABOR. 

The increase of labor is the increase of mankind, 
p. 206. 

It increases in geometrical ratio, and can easily double every 
20 years, p. 207. 

LAW OF MALTHUS.— Population tends to increase 
faster than the means of subsistence. 
Population is kept down by 

1. Absolute starvation in times of scarcity. This is 
the " Positive Check." 

2. (In a higher state of Civilization.) Limitation of 
births. " Preventive Check." 

Caused by 

a. Fear of want. 

b. Desire to better or maintain present condition. 

c. Limitation of marriao^es by the state. 



13 

Illus. Manufacturers of plajing cards, watches, etc. 

CAUSES OF THE INCREASED EFFICIENCY OF LABOR BY 
DIVISION OF EMPLOYMENTS. 

I. Increased dexterity in the workman, p. i66. 

When a thing is done frequently, it is not done betternecQs- 
s«rily, h\xi more easily. 

3. Saving of time in passing from one employment 
to another. 

This is somewhat counterbalanced bj the rest given by a 
change of occupation, as different muscles are used. 
Temperament has to do with this. p. i68. 

3. Inducement to invent labor-saving machines, p. 

173. 

The attention of laborers is directed toward saving of labor. 
Not always true, as inventors have often invented in lines verj' 
remote from their own employment. 

4. The more economical distribution of labor by 
classing laborers according to tlieir capacity, p. 173. 

Division of labor is limited (i) by the extent of market; and 
(2) by the nature of the employment. 

Chapter IX. 

PRODUCTION ON A LA.RGE AND ON A 
SMALL CASES. 

Every increase of business enables the whole to be 
carried on at a proportionately smaller cost. p. 17S. 

This can be determined by test. Wherever large and small 
establishments exist together, the one wiiich produces most 
cheaply will undersell the other, p. 179. 

The time of the manager is saved, /. e. fewer superintendents 
are required in a large business than in many small ones. p. 
181. 

Production on a large scale is facilitated by the form- 
ing of joint stock companies, p. 183. 



IS 

d. Limitation of marriages by customs of living, 
p. 309-10-11. 
Improvements in the condition of the laborer only 
gives a temporary margin, soon filled up by increased 
numbers, p. 312. 

To get a happier not a more numerous people : 
I. They must be intellectually and morally educated : 
or, 

3. The standard of living must be raised, p. 213. 

Small holditigs limit the thoughtless iticrease of munbers 
France for example. 

Chapter XI. 
LAW OF THE INCREASE OF CAPITAL. 

Increase of capital depends upon : 

(i) The amount of the fund from which saving can 
be made ; e. g. the amount of surplus wealth over neces- 
saries. 

1. The greater the produce, the greater the possible saving. 
This also partly determines how much will be saved for : — 

2. The greater the possible profit the stronger the motive for 
accumulation, other things being equal, p. 215. 

3. The strength of the desire to save, which is less : — 

(a) In unhealthy climates and occupations, e. g. 
sailors. 

(<5) In insecure localities, ^. ^. Burmah. 

(c) Because of want of appreciation of future good 
from present saci'ifice, e. g. St. Lawrence In- 
dians. 

{d) Because of want of interest in others, e. g. 
Later Rome. 

1 (i) All acctcmulation involves the sacrifice of a present for a 
future good. The abilit}' to see that the future good is greater 
than the present sacrifice is the test of civilization. 



i6 



(2) Whatever strengthens probability that our accumula- 
tions -will be etijoyed by ourselves or friends strengthens the ef- 
fective desire of accumulation. 

Uncivilized races will not work when the returns are distant, 
because they cannot see that the gain is greater than the 
trouble. 

(3) Durability marks a high degree of effective desire of ac- 
cumulation, 

Chinese build frail houses, etc. They work when returns are 
distant, but not when very distant. Defect of providence, not of 
industry, limits production among Chinese, p. 222. 

STATIOl^ARY STATE. 

When production has been carried so far that the returns from 
capital hardly satisfy the average effective desire of accumula- 
tion, the country is in the stationary state. No additions to 
capital will be made, unless the arts of production increase, or 
effective desire strengthens, p. 225. 

No more capital can be employed at the existing rates of in- 
terest, and no more capital will be accumulated to be employed 
at lower rates. 

Long exemption from war, early state of security, superior 
political institutions, etc, etc, gives a peculiar force to accumu- 
lating propensity, e. g. in England, p. 226. 

Chapter XII. 

THE LAW OF THE INCREASE OF PRODUC- 
TION FROM LAND. 

The limited quantity of land and the limited pro- 
ductiveness of it, are the real limits to the increase of 
produce. 

THE LAW OF DIMINISHING RETURNS. 

AFTER A CERTAIN NOT VERY ADVANCED STAGE IN AGRI- 
CULTURE, AN INCREASE OF LABOR DOES NOT 
INCREASE THE PRODUCE IN AN EQUAL 
DEGREE, p. 230. 

This is the foundation of political economy. This law has not 
set in when more labor and capital are needed to give all the 
land its maximum product, p. 233. 



17 

When inferior land (/. e. land wiiich with equal labor gives less 
produce) is resorted to, the produce, evidently, does not increase 
proportionately to labor. Land is inferior in fertility or situa- 
tion. 

Transportation is part of the cost of productio7i. 

Produce from inferior lands costs more, and the price in- 
creases. If it were not for the law of ditninishing returns in- 
ferior lands would never be used. 

Sometimes an immense increase of labor and capital on culti- 
vated \?ind% brings tnore than a proportionate increase, p. 233. 

Actual facts do not give the expected results because of oppos- 
ing agencies caused by the progress of civilization, namely, 

THE PROGRESS OF AGRICULTURAL SKILL, KNOWLEDGE, 
AND INVENTION. 

Agricultural improveixients are of two classes. 

1. Those which increase the produce without increas- 
ing the labor in proportion, p. 236. 

a. Rotation of crops, with the disuse of fallows. 

b. The introduction of new valuable plants, e. g. turnips, 
which enter into rotation with great advantage. 

c. Introduction of new articles of food, e. g. potatoes- 

d. Introduction of new manures. 

e. Increased knowledge of the application of manures. 

/. Improvements in the soil itself by subsoil ploughing and 
draining. 

g. Improvements in the breeding and feeding of working 
cattle. 

h. Increased number of waste-eating, food-producing cattle. 
P- ^37- 

2. Those which diminish labor, but do not increase 
productiveness. 

a. Improved construction of tools. 

b. Use of machinery which saves labor. 

c. Improvements in transportation. 

d. Improvements in manufacturing processes. 

Thus railways and canals diminish cost of production, p. 238. 

The materials for manufactures come from the land, 
.-. the law of diminishing returns applies to manufac- 
tures. But : — 



18 



The cost of materials forms but a small part of the cost of 
manufactured articles. Labor-saving machines increase with im- 
mense rapidity, p. 239. 

The causes of increased productiveness prevail over 
the law of diminishing returns in manufactures. 

This is shown by the fall in prices, p. 239. 

SECONDARY CAUSES OF INCREASED PRODUCTIVENESS IN 
MANUFACTURES . 

1. Improvements in Government and morals. 

2. Improvements in education. 

3. Improvements in general character of laborers. 

4. Community of interest between labor and capital. 

The law of diminishing returns applies to extractive indus- 
tries, p. 242. 

RESUME : — All limited natural agents, long before 
their productive powder is stretched to the utmost, yield 
to additional demands on harder terms. This law is 
suspended by anything whicli adds to the human knowl- 
edge of the properties and powers of natural agents. 

Chapter XIII. 

THE CONSEQUENCES OF THE FOREGOING 
LAWS. 

The limit to increased production comes from, 
I. Deficiency of capital, or (2) of land. 

In countries where effective desire of accumulation is low, in- 
dustry must be stimulated by iipprovements in production ; e. g. 
Russia, Ireland, etc. p. 244. 

In countries wh^re it is high, the increase of capital is checked 
by smallness of returns. 

The tendency of returns to progressive decrease lowers the 
condition of producers, and would soon slop increase of pro- 
duction. It is a consequence of the law of diminishing returns, 
p. 244. 

The necessity of restraining population is not peculiar 
to condition of great inequality of property, for : 



19 

A large number of people can never be as well oft' as a small 
number. 

The laws oi nature not society cause misery- trom over popula- 
tion. 

An unjust distribution of wealth causes the evil to be felt 
earlier, but does not aggravate it. 

New mouths need as much food as the old, and the accom- 
panying hands do not produce as much as the old ones. p. 245. 

After the density of population is sufficient to insure all the 
benefits of combination of labor, further increase tends to lower 
condition of people, but impi-ovements counteract this. p. 246. 

Improvements never can come up to the capability for human 
increase, but they have equalled the present limited increase. 

If the population had been still more limited, the condition of 
all would have been much bettered by improvements, instead of 
the margin being filled by increased numbers. 

REMEDIES FOR OVERPOPULATION, p. 348. 

When the law of diminishing returns begins to set in, and the 
rate of increase is still unchanged, these things will mitigate its 
eftects. 

1. Importation of Food. 

The admission of cheap foreign food equals an agricultural in- 
vention at home which would reduce the cost by the same 
amount. 

The laborer gets more food for the same labor, but the pres- 
sure soon returns from increased numbers. 

Excessive over population ahvays raises the general price of 
food. For food is raised on limited areas, which are not large 
enough to supply a great demand without great exertion ; in any 
case, the quantity of food which can be obtained without in- 
crease of proportional cost is limited. 

Two classes of countries can export, 

(a) Countries with large eflfective desire, but their own in- 
creasing population must be provided for, and exporting soon 
ceases. (^) In some countries the population is less than the 
food and, owing to their backward state, they can export. 

The law of diminishing returns applies also to food-importing 
lands, p. 250. 

2. Eniigration, or colonization. 

The relief from this is real, as it simply adds available land. 



20 



No stream of emigration could be kept up which would remove 
the excess of population over food if increases were unchecked. 

P- 253- 

Import of food is now really a greater resource than emigra- 
tion. 



BOOK II. 

DISTRIBUTION. 

Chapter I. 

PROPERTY. 

The laws of production ure physical truths, with noth- 
ing optional or arbitrary about them. p. 357. 

The laws of distribution of wealth are solely a matter 
of human institutions, p. 258. 

Society has always rested on Individual Property. Tribu- 
nals arose to repress violence, and called possession rightful 
ownership. 

Suppose a body of colonists in a new country; they can have 
either : 

1. Private Property, p. 261. 

Land and tools would be fairly divided at the outset, and 
each individual would provide for himself. Or, 

2. Community of Goods. 

Everything would be held in common. Production would be 
managed by the magistrates. Products would be divided as the 
people might wish. 

OPPONENTS OF INDIVIDUAL PROPERTY. 

I . Those who wish absolute equality in the distribution 
of the physical means of life and enjoyment. " Com- 
munists," Owen, Blanc and Cabot, p. 262, 



21 



2. Those who admit inequality, but wish wealth to 
be distributed according to justice or expediency and not 
by accident as now. p. 362. 

Socialists. 

A self given name of the English Communists. On the Con- 
tinent it does not implj the abolition of private property, but 
that governments or associations should possess the land and in- 
struments of production. 

Socialism to-day is usually applied to 

Those who wish to abolish private property, and give 
the capital, land, and labor of a country over to State 
control. 

OBJECTIONS TO COMMUNISM. 

I. Each person wou^d try to avoid his fair share of 
work. 

Answer. This evil exists anyway. A " master's eye " cannot 
be everywhere, but a Communist would be watched by the 
whole Community. Communist labor would be less effective 
than that of laborers working for themselves, but more effective 
than that of hired laborers, p. 263. 

3. If every man were sure of subsistence for himself 
and children, prudential restraint would cease, and popu- 
lation would increase until starvation was reached. 

Answer. Any increase of numbers which increased the toil of 
the masses would then (it does not now) cause immediate incon- 
venience to every individual. This misery could no longer be 
imputed to the avarice of employers or the privileges of the rich. 
Public opinion would force the reckless to apply the prudential 
check, p. 265. 

3. It would be impossible to divide the labor fairly, 
as there is no common standard between different kinds 
of work. p. 266 

The same quantity of work is an unequal burden on people of 
different physical capabilities, the feeling of justice would revolt 
against nominal equality of labor for persons unfit to bear it. 



22 



Communism with all its chances far better than Society 
AS IT IS NOW. But; — 

To make a fair comparison, we must compare Communism at 
its best with individual property, not as it is, but as it might be 
made. 

Private property has never yet conformed to the principles 
which justify it. Property has been made of things which should 
not be, and absolute property of things which ought to be quali- 
fied property, p. 268. 

Private property is defensible only when it means the 
guarantee to individuals ot the fruits of their own labor 
and abstinence. 

Intestate inheritance not part of the institution and often con- 
flicts with the principles which legitimize it. p. 268. 

^. 
POSSIBLE DESTINATION OF PRIVATE PROPERTY. 

Everything must be rectified which is opposed to the 
principles of proportion between exertion and reward. 
We must also have : — 

1. Universal education, p. 269. 

2. Due limitation of population. 

Without these two, neither Communism nor any other system 
could make the condition of the masses other than miserable and 
degraded. With these, there could be no poverty, even under 
the present system; and this being supposed, the questi-on is, 
not as the Socialists say, a question of flying to the only x'efuge 
against present ills, but a mere question of comparative advan. 
tages. 

The decision will depend upon the consideration, which of the 
two systems gives the greatest amount of human liberty and 
spontaneity. 

SCHEMES OF SOCIALISTS. 

These retain more or less the incentives to labor derived from 
private pecuniary interest, p. 271. 

Associations of workmen formed manufacturing on their own 
account. These began by sharing remuneration equally, but 
soon recourse was had to piece, work. 



23 

Two Non-Communistic Socialist schemes are totally free 
from the objections to Communism, viz : 

I. SAINT SIMONISM. 

This contemplates an unequal division of produce, and that all 
should be occupied according to capacity and vocation. 

The authorities assign the functions and also the salary due to 
the merits of the worker. (No human beings could do this 
justly.) p. 272. 

2. FOURIER ISM. 

This is the most skillful form of Socialism. 

Capital and labor are both important, p. 274. 

No abolition of property, or inheritance. 

Territorial industrial associations are formed. 

A minimum is assigned for the subsistence of the whole com- 
munity. The remainder of the product is to be divided between 
labor, capital, and talent. 

The capital is owned by tiie members in unequal shares, with 
proportional dividends. 

Talent is estimated by grades conferred by the choice of fel- 
low-workers. 

Separate households living in large buildings. Co-operative 
stores, etc. 

Objection. Such communities suffer from want of family life 
and of executive ability. The independence of younger mem- 
bers carries them away. 

Chapter II. 

SAME SUBJECT CONTINUED. 

The institution of property is founded on the right of 
producers to what they have produced. 

It may be received by gift or by agreement, p. 278. 
Possession, not legally questioned for a moderate number of 
years ought to be a complete title. 

CONSIDERATIONS TO BOUND PRIVATE PROPERTY. 

The foundation of private property is the right of 
every person to get what he can for his faculties, and to 
dispose of his reward as he pleases, p. 283. 



24 

Bequest is right and proper, but intestate inheritance is wrong 
and unjust. 

Bentham proposed that, if there are no direct heirs, intestate 
property should go to the State. 

DUTIES OF PARENTS AND CLAIMS OF CHILDREN. 

Parents owe to society to make children good and 
valuable members of it. Children ought to be provided 
with education and other means sufficient to give them 
a fair chance of obtaining success by their own|exertions. 
Every child has this claim, but has no claim to anything 
more. p. 286. 

There are limitations to the power of bequest, p. 287. 
(i) It should not be bequeathed in perpetuity. 
(2) The details of its application in perpetuity should not be 
prescribed. 

Land as such cannot justly be property. But : — 
If the land owed its productive power wholly to nature, and 
none to industry, it would be unjust to let it be engrossed by in- 
dividuals. But most of the valuable qualities of land are the 
product of industry. The fruits of this industry cannot be reaped 
in a short period. Nobody will incur labor and expense un- 
less he will be benefited. Time must be given to enjoy the im" 
provenients, and perpetual tenure is the best way to secure this, 
p. 291. 

OWING TO THESE REASONS, PROPERTY IN LAND IS JUSTI- 
FIED WHILE THE OWNER IMPROVES IT. 

But property in land is not sacred, and is unjust if not 
expedient. 

The products of labor should be absolute property. 

Land should be property only when it produces posi- 
tive good. 

No quantity of moveables prevents others getting more, but 
the holder of land keeps others from its enjoyment, p. 297. 

A man has a right to the profits from land, but he 
must manage it consistently with the public good. p. 298. 



No proprietary rights ought exist, as : Commissions in army, 
right of nomination to an ecclesiastical benefice, etc. p. 299. 

Chapter III. 

THE CLASSES AMONG WHOM THE 
PRODUCE IS DISTRIBUTED. 

Industrial Community^ 

1. Landowners. 

2. Capitalists. 

3. Productive Laborers. 

The remainder of Community is in fact supported by them, 
p. 301. 

These do not always exist completely separated. One person 
may own one or all of them, as in slave countries, land, labor 
and capital are frequently owned by same person, — or laborer 
himself may be proprietor, or same person may own land and 
capital, but not the labor, p. 303. 

Chapter IV. 
COMPETITION AND CUSTOM. 

Division of produce is result of two agencies : 

1. Competion, and 

2. Custom. 

Most stress is now laid on competion, formerly it was laid on 
custom, p. 307. 

Relations between landowner and cutivator, in former times, 
determined by usage of country; e. g. in India. 

In modern Europe, cultivators have gradually emerged from a 
state of personal slavery, p. 309. 

Prices in absence of monopoly came earlier under in- 
fluence of competition than rents, p. 310. 

The wholesale trade is ruled by competition ; retail trade feels 
it slowly, p. 311. 

Custom stands its ground to a considerable extent against 
competition in many localities, p. 312. 



26 

Chapter V. 
SLAVERY. 

Slavery — ownership of land, capital and labor in same 
hands. 

Members kept up by 

(i) Importation. 

(2) Breeding process. Slower and more expensive. 
P-3I5- 

Labor extorted by fear of imprisonment is insufficient and un- 
productive, hence 

Slavery is incompatible with any high state of the arts 
or any great efficiency of labor, p. 316. 

Whether slavery or free labor is more profitable to employer, 
depends on wages of free laborer and these, again, on the num- 
bers of the laboring population. 

Chapter VI. 

PEASANT PROPRIETORS. 

The opposite of slavery r^laborer owns land ; whole 
produce belongs to single owner, p. 321. 

Found extensively on continent, but not at all in England. 

The peasant proprietors of Switzerland, Saxony, etc., show 
great industry. The small proprietors have been gradually be- 
coming more and more prosperous, p. 339. 

Belgium furnishes best illustrations. People show great skill 
n the cultivation of their land. p. 340. 

They are gradually acquiring capital, p. 344. 

Peasant properties of the Channel Islands are very beneficial 
in their operation, p. 345. 

Property in land is the most active instigator to severe 
and incessant labor. 

Properties must not be so small that they fail to fully occupy 
the time of the family, p. 352. 



27 

Chapter VII. 

CONTINUATION OF SAME SUBJECT. 

There must be permanent possession on fixed terms. 
P- 355- 

They are instruments of popular education by giving a multi- 
tude of interests : an appeal is made to moral virtues of prudence, 
temperance and self-control, p. 358. 

The preventive check on population is exercised, 
p. 361. 

Marriage is delayed until a farm is possessed, p. 365. The 
rate of increase by French population is the slowest in Europe. 

It does not follow that even if pro/>er^y is minutely divided, 
forms will be so. p. 370. 

No other state of agricultural economy has so beneficial effect 
on laborers. 

Chapter VIII. 

METOYERS. 

Produce of land and labor divided between (i) labor- 
ers and (2) landowners. France, Italy, etc. 

Laborer pays a certain proportion of produce after deduction 
is made for keeping up the stock. Usually one-third, but varies, 
p. 377. Landlord supplies whole or part of stock. Same ad- 
vantages as peasant properties but in a less degree, p. 379. 

Great disadvantage. No part of stock, which they 
might save from their own share of produce, is laid out 
in further improvement of land. 

English Economists oppose the system unjustly, p. 380. 
It is better than a system of money-rents and capitalist 
farm.ers. p. 394. 

Chapter IX. 

COTTIERS. 

Laborer makes his contract for land without interven- 



tion of a capitalist fanner and the conditions are deter- 
mined by competition, p. 396. Ireland, etc. 

Produce divided into: (i) rent, and (2) remuneration of the 
laborer. Rent depends on competition; i.e. on proportion be- 
tween population and land. p. 397. 

Cottier agriculture usually miserable. No incentive to pre- 
ventive check as rent may be increased by multiplication of 
other families, p. 400. 

Peasant is usually in arrears to landlord, p. 402. 

The inducements of free human beings taken away and those 
of a slave not substituted. 

A similar system exists in India, p. 404. 

Landlord usually the sovereign. Payments regulated by 
ctisio7n. 

English establishment of a lauded aristocracy proved a com- 
plete failure, p. 407. 

Chapter X. 

MEANS OF ABOLISHING COTTIER TENANCY. 

English Parliament conferred a legal claim to eleemosynary 
support. This took away every motive to industry, p. 409. 

Self-supporting emigration has proved a great releaf to Ire- 
land, p. 410. 

Justice, however, requires that actual cultivators should 
be enabled to become proprietors of the soil. p. 412. 

The change to the condition of day-laborers would be of no 
benefit. 

The great remedy vs^ould be to make them peasant 
proprietors, p. 412. 

This is hardly practical, but cottier tenancy should be entirely 
wiped out. 

Chapter XI. 

WAGES. 

Tne effects of competition are usually exaggerated, and those 
of custom slighted, but there are two 



29 

Agencies affecting Wages. 

1. Competition^ disturbed by 

2. Custom. 

These modify each other and produce varied results. 
Competition has only recently become the governing princi- 
ple, p. 420. 

causes of the general rates of wages. 

Wages Depend on, 

1. Demand=Capital (that part only of circulating 
capital which is expended in direct purchase of labor, 
p. 420.) 

2. SupplynrPopulation (those who work for hire). 

The wages fund=the wages of productive and unpro- 
ductive laborers. Productive wages are the larger part, 
so the term is employed for these. 

SOME APPARENT CONTRADICTIONS TO THIS DOCTRINE. 

1. Wages are high when trade is good. 

When there is a brisk demand for commodity, more labor is 
needed, and wages rise. 

Answer. This is not inconsistent with the theory. 

All capital is occasionally idle, then it is the same to the 
laborer as if it did not exist. A brisk demand employs idle 
capital. 

When capital is unemployed, wages fall. 

These are temporary fluctation«. p. 420. 

2. High prices make high wages. 

Because the capitalists make greater profits and therefore can 
pay their laborers more. 

Answer. This can only happen if the capitalists, receiving 
more, save more, and thus increase their capital; otherwise, 
wages will be higher in the trade with a brisk demand, and 
lower in the rest. This cannot last lon-g, for the superfluous 
capital will overflow into the other trades and restore the 
balance, p. 422. 



1/ 



30 

Distinguish carefully between 

Real wages, the quantity of commodities which a 
laborer obtains in return for his exertions, p. 423 ; and 

Money wages, the mere amount of money that a la- 
borer receives, irrespective of its exchange value. 

Resume. When profits increase with higher prices, 
more capital will be invested in that one trade, thus 
there will be a demand for labor, and monej^ wages will 
rise in that industry. 

When we consider the relation between prices and real wages, 
the question differs. 

General high prices would not change real wages. But if 
prices are higher in one trade, the laborers in that will get 
higher real ivages. 

3. Money wages vary with the price of food. 

Answer. This is only partially true, and does not affect the 
dependence of wages on capital 2iX\d happens in accordance with 
its laws. 

Dear or cheap food caused by variety of seasons does not affect 
wages, except that in times of scarcity people are eager for em- 
ployment and lower the market against themselves, p. 186. 

But, previously k?iotv7t permanent dearness or cheapness of 
food may affect ivages, for: — 

1. If the laborers have only enough to support themselves 
and the ordinary number of children, if food grows dearer and 
wages do not increase, more children will die. Wages will in- 
crease because laborers are fewer than if food had remained 
cheap. 

2. Even if wages were high enough to allow food to become 
dearer without depriving laborers and their families of neces- 
saries, they might not wish to forego comforts, and so would 
limit births, p. 424. 

A rise in the price of food may operate thus: — 

1. Wages may increase by prudential check. 

2. Wages may be unchanged, but the standard of living may 
be lowered, and the injury may become permanent. 

The latter case is more frequent, and mullifies the self repara- 
tion of calamities to the laboring classes, p. 425. 



31 . 

Converse. 

When food cheapens, wages will not fall immediately, thev 
may even rise; but they will fall at last so that the laborer will 
be no better off than before, unless the indispensable standard of 
living has been raised. This is seldom the case, and marriages 
increase in seasons of cheap food. p. 426. 

The condition of the laborer can be bettered only by 
additions to capital or by a diminished birth rate, 
p. 438. 

Population can increase with impunity only when 
capital also increases immensely. 

Usually either 

a. The arts are stationai-y, and capital increases slowly. 

b. Owing to a low effective desire of accumulation, the in- 
crease of capital is soon limited. 

c. If neither of these occurs, the increase of capital is limited 
by deficiency of land. 

If capital and population double simultaneously, prouduce 
cannot; — therefore. 

Either wages fall, or profits fall and the increase of capital is 
slackened. 

Only in very exceptional circumstances can population in- 
crease rapidly without lowering wages, p. 430. 

Resume, 
population is restrained either by 

1. Prudence of individuals or States. 

2. Disease or starvation. 

3. Customs of living ; — local or trade customs, p. 434. 

Chapter XII. 
POPULAR REMEDIES FOR LOW WAGES. ^ 

VARIOUS MEANS OF KEEPING UP WAGES TO DESIRABLE 
POINT. 

I. Fix amount of wages by law. p. 442. 



32 

This is the simplest way, and the one usually proposed. 
It is not intended nowadays to fix wages absolutely, but to fix a 
minimum and let the excess be adjusted by competition. 

2. Fix wages by boards of arbitration. 

These are composed of delegates from labor and capital, to ad- 
just wages, not according to the state of the labor market, but 
according to natural equity. 

3. Fix wages by public opinion of what is fair to both 
parties. (Philanthropists.) Minimum of wages fixed. 
P- 443- 

Competition not only keeps wages down, but also keeps them 
up ; as when all who are out of work have found employment, 
wages will not fall lower, p. 443. 

State lays taxes, the income of which is to be put to productive 
expenditure. Wages fund is thus increased. No one has right 
to bring creatures into the world to be supported by others. 

Preventive check must be put upon population, p. 446. 

Charity only takes away prudential motives, p. 447. 

Allowance system (1800-1834). Wages fixed by com- 
petition. When too low insufficient laborers were aided. 

Introduced after succession of bad seasons, p. 449. 
Population increased rapidly and wages fell under this system. 

Allotment system. Labor compensated for insuffi- 
ciency of wages, by renting small piece of ground which 
he cultivates, p.. 451. 

Effect on wages and population same as in allowance system. 

Remedies for low wages must operate on and through 
the minds and habits of the people, p. 455. 

Chapter XIII. 

REMEDIES FOR LOW WAGES CONCLUDED. 

Poverty exists because men follow the brute instances 
without due consideration, p. 458. 



33 

A religious prejudice exists against the true doctrine. 

THE REAL REMEDY FDR LOW WAGES IS LIMITATION OF 
POPULATION. 

This is understood by trades unions in regard to their own 
trades, but is not generally applied because : p. 465. 

1. The matter is better comprehended in a small field. 

2. Artisans are more intelligent than laborers. 

3. Artisans are more provident because they have more to 
preserve, p. 465. 

To alier the habits of laborers, all must be educated. 
j3ut education is incompatible with extreme povert\', so : 
Povert}' must be annihilated for one generation ; this 
can be done : — 

1. By national colonization, p. 467. 

The inoney for this would come from nnemployed capital, 
p. 468. 

2. By creation of small proprietois. p. 46S. 

Public land should be divided into small holdings, necessary 
tools, etc., supplied to responsible laborers, and interest for the 
advance laid as a perpetual quit rent. p. 468. 

Either alternative must be carried out on a large scale so as to 
raise the general standard of living. 

Chapter XIV. 

DIFFERENCES OF WAGES IN DIFFERENT 
EMPLOYjMENTS. 

ADAM smith's IDEAS. 

[. Wages decrease with ease, cleanliness, and honor- 
ableness in various trades, p. 471. 

But really disagreeable employments, instead of being better 
paid, are worse paid than othei-s, because those who hnve no 
choice, do the -woik. If ihe supply of labor were greater than 
the demand, then people would requii-e additional compensation 
to induce theni to do unpleasnnt work. 



34 

2. Wages are higher when employment is incon- 
stant, p. 473. 

Usually employment is continuous, but in trades where it is 
not, the laborer must earn enough to support him when he is 
necessarily idle; he must also be compensated for the risk and 
consequent anxiety of getting no employment. The combina- 
tion of these two causes makes verv high wages, p. 474. 

3. If the chance of total f^iilure is great, possible 
rewards must be higher, p. 475. 

I, 2, and 3, would be true if competition were free. 
The following are caused by natural monopolies. 

4. Wages increase with the trust necessarily imposed 
in the laborers. 

This is caused by absence of competition, for but few laborers 
are trustworthy, p. 477. 

5. Wages are higher when the trade needs previous 
education, and are proportionate to its cost. 

Wages must repay with a profit the expense incurred in edu- 
cation, p. 478. 

There is a natural iTionopoly in favor of skilled labor- 
^^s, executive managers, etc. 

The fact that instruction is required puts the trades beyond the 
masses and creates a natural monopoly', p. 479. 

Tkeojy of 7i07i- competing groups, p. 480. 

A series of layers exist among laborers which are separated by 
various causes, the members of each layer compete with each 
other, but the strata are practically isolated. Now, however, 
increased facilities for education are breaking down the barriers 
between strata. This, besides many excellent effects, unfortun- 
ately tends to diminish the wages of skilled labor. 

The system of scholarship aid has done much to keep 
down wages of labor requiring education, p. 4S2. e.g'. 
clergymen, literary men, teachers, etc. 

Demand for literary labor has increased since Adam Smith 



35 

wrote above, but competition with amateurs has produced a sim- 
ihir ell'ect. p. 485. 

When a trade is carried on by persons who are mainly 
supported by some other trade, which alone cannot sup- 
port them, the wages of the former trade may be ex- 
tremely low, e. g.^ domestic manufactures. In these, 
the wages depend on whether the supply can fill the 
demand, p. 487. 

If it cannot, some hiborers must devote themselves entirely to 
this kind of production, and the price of the article must be high 
enough to give the laborers ordinary wages, and, therefore, to 
give the domestic manufacturers handsome rewards, p. 4S7. 

But if the supply is too great, the price is kept down to the 
lowest point where it will pay to produce it. 

Supplementary Resoinxes Diminish Wages. 

When the laborer is assisted by domestic manufacturers, or 
outside aid, the wages of the main occupation decrease. 

When a laborer's family assists him, his wages are lowered. 
The collective earnings will often be less than his alone, because 
of over[)opulation. When a man's family does not assist him, 
his wages must be enough to support him, his wife, and enough 
children to keep the population up, for if they were less, the 
population would not be kept up. p. 488. 

COMPARATIVE WAGES OF MEN AND WOMEN. 

When men and women are equally efficient, custom is 
the only thing that makes their wages unequal. But, in 
the employments peculiar to women, an overcrowded 
state lowers wages. Skilled labor enjoys a monopoly as 
usual. 

Overcrowding reduces wages of women lower than those of 
men. Women get the amount necessary to sustain one human 
being, men always get more. p. 489. 

Fees of professional persons are fixed by custom, p. 

493- 



36 

CliAPTKR XV. 

PROFITS. 

After repaying the capitalist for his outlay in wages, materials, 
tools, etc., a surplus remains which is his profit. This he can 
spend or save. p. 495. 

Wages of labor are the reward of lab(3r. 

Profits of capital are the reward of abstinence. 

Gross profits consist of: 

i . Only a part of tlie gross profits is the return for the 
use of the capital itself, viz., What a solvent person 
would pay for the loan of it = Interest, p. 496. 

2. Compensation for risk, which raises the rate of 
interest. 

3. Wages of superintendence; /. g., reward for 
assiduity and skill. These are not really part of profits, 
but are wages of skilled labor. 

The lowest rate of profits that can exist is that which 
is barely adequate to compensate for the abstinence, risk, 
and exertion employed, p. 49S. 

From the gross profits, enough must be taken to cover 
losses. 

Remtmeration for capital is steady. 

Remuneration for risk is very variable. 

Remuneration for superintendence is very variable. 

After allowance is made foi risk and monopolies, the 
ratj of profit on all capital tends to an equality, p. 502. 

Gross profits vary with individuals, p. 503. 

Depend on knowledge, talents, economy and energy of capital- 
ist himself or his agents. 

Various trades hold out equal expectations of profit, 
after making necessary compensations. 

If this were not so, more persons would enter the 
more thriving business, p. 503. 



Ifa trade is not considered thriving, and its prolits are interior 
to tliose of others, capital leaves it, or new capital is not attiacted. 
By this change in distribution, a sort of balance is kept. p. 504. 

This equalizing process, i. e., the transfer of capital from one 
trade to another, does not often call for a real transfer of 
capital, but is made by the distribution of new accumulations. 
Even Avhen capital is really transferred, those in unprofitable 
trades do not give up business, but only limit tliat part of it 
which is carried on with borrowed capital, while the most profit- 
able trades increase that part of theirs. 

Wiien a business is altogether declining, and tlie capital must 
be extricated, much loss is incurred, therefore this is done only 
as a last resort. This is owing to niachinery and other fixed 
capital, business connections, and experience, p. 505. 

CAUSE OF PROFITS. 

Labor product-s more than is needed for its support, 
thus a surplus is left which is profit. 

Profit comes from the productive power of labor, not 
from the incident of exchange, p. 509. 

The capitalist is assumed to make all advances and to receive 
all the produce, p. 510. 

The Rate of Profit is the ratio which the excess 
of product over advances bears to the advances. 

ALL ADVANCES ARE WAGES OF LABOR, 

for materials and implements are produced by labor. 
Rent is left out of the question, p. 5fi. 

Therefore profits depend on the cost of labor and 
nothing else can affect them. p. 512. 
Wao:es are distinct from cost of labor. 

It is commonly said that wages are high, when it is meant that 
the cost of labor to the capitalist is high. 

Tlie cost of labor is fiequently at its highest when 
wages are lowest, for labor, though cheap, may be in- 
efficient. 



3^ 

Although inefficiency is usually accompanied by low wages, 
laborers with high wages usually give an equivalent. 

Another thing which makes wages no real criterion of 
the cost of labor is the varying costliness of articles con- 
sumed by the laborer, p. 513. 

If these are cheap, real ^ages may be high, and yet the cost of 
labor may be low. 
If dear, real wages will be low, the cost of labor high. 

COST OF LABOR DEPENDS ON, 

I. The efficiency of labor. 

Under this head comes the question of fertility and natural 
advantages, and the whole matter ot ease and difficulty of produc- 
tion. 

3. The real wages of the laborer. 

3. The greater or less cost of the articles composing 
these real wages, p. 514. 
Profits will rise if: — 

1. Labor becomes more efficient, and there is no in- 
crease in wages. 

2. Real wages fall, the cost of the components being 
imchanged. 

3. Necessaries become cheaper, while the laborer 
obtains no more of them. 

This involves a fall in money wages. 

Profits will fall if:— 

The converse of i, 2, 3 happens. 

No other circumstances can alfect profits, p. 314. 

Chapter XVI. 

RENT. 

Since labor, capital, and natural agents are needed for 
production, the man who has a natural agent has a 



39 

claim to a part of the product. Land is the principal 
natural agent which can be appropriated, and what is 
paid for its use is called Rent. 

Lpiuded men are the principal class who htive a right to a 
share in the product through their ownership of something 
which is not the product of labor, p. 516. 

Rent is the effect of a monopoly. 

The reason ^vhy landlords exact rent is, because manj- want 
land, but can obtain it only from them. 

Cairnes says that agricultural rent is not caused bv a monop- 
oly of the soil, but by its diminishing productiveness. 

Rent depends on law of diminishing returns, p. 517. 

A thing which is monopolized, when the gift of Nature and 
not the result of labor, commands a price only when supply is 
less than the demand. 

If the whole of a country were needed for cultivation, all the 
land might yield rent. p. 517. 

No land pays rent unless its belongs to those superior 
kinds of which the supply is less than the demand. Al- 
ways some non-rent-paying land. 

LOWEST CLASSES OF CULTIVABLE LAND. 

1. The worst land which can be cultivated for s?i6- 
siste7ice is that which will just replace the seed and food 
of the necessary laborers, and also the food of the sec- 
ondaries, p. 51S. 

Secondaries=laborers needed to supply agriculturalists with 
tools, etc. Nothing is left for profits, so the land can only be 
cultivated by the laborers themselves, or at a loss. 

2. The worst land which can be cultivated as an in- 
vestmevt is that which, after replacing the seed and food 
of laborers and secondaries, and giving them the curient 
rate of wages, leaves a surplus which equals what the 
capital could have obtained in other employments. 



40 - 

Whetlier an\' land can do more than lliis is not a physical 
question, but depends partly on the value of agiicultural produce. 
The greater the excess of produce over advances, the poorer are 
the cultivable soils which can atYord ordinarj' profits, p. 519. 

It is evitlent that there will always be some Innd of 
class 2. This cannot pay rent until prices rise. p. 

519- 

The produce of this land is needed by the country, otherwise 
prices would not have risen high enough to render its cultiva- 
tion profitable. 

The Margin of Cultivation is the standard af- 
forded by the land which gives only the ordinary profits 
(Class 3) for estimating the amount of rent which supe- 
rior lands should pay. 

The rent which any land will pay is the excess of its 
profits over the profits which would be returned to capi- 
tal used on the worst land in cultivation. 

The competition of capital allows landlords to appropriate 
this, since otherwise some capital would recieve more than ordi- 
nary profits, p. 520. 

Some land always pays no rent. 

Objection. No landlord would allow his land to be used with- 
out payment. 

Answer. Inferior land is interspersed with better. Rent is 
paid for the whole nominally, but it is calculated only on those 
parts which return more than ordinary profits. See p. 521. 

Suppose that soil of a certain low grade, whose cultivation 
would yield only ordinary profits, Avere withheld from cultiva- 
tion. Increased produce would be obtained by the application 
of increased capital and'labor on previously cultivated soils. 

The law of dimishing returns would cause the profit from this 
second application of capital and labor to just equal that v/hich 
the withheld land would yield, p. 522. 

Even if it were true that there is never land which 
pays no rent, there is always some agricultural capital 
which pays no rent. 



41 

This is the portion last applied, or applied in the last favora^ 
ble circumstances, p. 523. 

The same price which gave this last application ordi- 
nary profits enables all the rest to yield a surplus pro- 
portionate to its advantages. This is rent and is taken 
by the landlord. 

Lav^s of Rent. 

1. A farmer requires the ordinary rate of profit on 
his w^hole capital. 

2. All excess of profits he must pay to landlord and 
no more. 

3. There is always some agricultural capital which 
gives only ordinary profits, p. 524. 

Many payments are included in rent which do not belong 
there; e. g.^ buildings are not land but capital, and reward for 
their use is interest not rent. 

Capital sunk in permanent improvements loses its character 
and becomes land ; it should yield rent. 

In whatever order land comes into civilization, those 
which yield the least proportionate return will always 
regulate the price of agricultural produce ; other lands 
will pay rent. 

Rent does not really form any part of the expenses of agricul- 
tural production. For superior efficiency makes up for higher 
price, in this as always, p. 531. 

BOOK IIT. 
EXCHANGE. 

Chapter I. 
VALUE. 

Value is concerned only with distribution of wealth, ^nd not at 
all with production, and with the former only so far as competi- 
tion, not custom, ie the distributor, p. 535. 



The Use of a thing is its capacity to satisfy a desire, or 
to serve a purpose. No useless thing has a price. 

Teleologic Value, or value in use, is the extreme 
limit of value in exchange. 

Exchange value may be less than value in use, but it can never 
be greater; for persons will not give for a thing more than the 
utmost value it has for them in gratifying their inclinations. 
P- 537- 

Value, without adjunct, means value in exchange. 

Exchange value must be distinguished from price. 

The Price of a thing is its value in money, p. 538 
Exchange Value is the general purchasing power. 

Command over commodities in general, or purchasing power, 
is merely relative. 

Those changes which originate in several commodities com- 
pared with a particular one affect its value relative to them ; but 
those which originate in itself affect its value in regard to every- 
thing. 

A general rise of prices is possible. 

A general rise of values is impossible. 

For all things cannot rise relatively. Some must rise and 
others must necessarily fall. A general rise or fall of prices 
means an alteration in the value of money, and is unimportant, 
except as regards contracts, p. 541. 

Competition is supposed to regulate everything. 

Chapter II. 

DEMAND AND SUPPLY IN THEIR RELATION 
TO VALUE. 

Exchange value has tw^o conditions : 

1. Utility, or ability to satisfy a desire (U). 

2. Difficulty of attainment, which has three classes : 

CLASS I. 
Those limited in supply, e. g. ancient pictures or monopolized 
articles. 



43 

Law I. Their value is regulated bj demand and supply. U 
the only limit. 

CLASS 2. 

Those whose supply can be indefinitely increased by labor and 
capital. 

Law 2. Their normal and permanent value is regulated by 
cost of production, their market value by demand and supply, 
which tends toward the normal value. 

CLASS 3. 

Those whose supply is governed by diminishing returns, and 
whose cost is continually increasing. 

Law 3. ^heir normal value is regulated by the cost of pro- 
duction of that part which is marketed at the greatest cost. 
Their market value is regulated by demand and supply as in 
Class 2. 

If competition is not free, then the value of Classes 2 and 3 is 
governed by the law of reciprocal demand, p. 547. 

Difficulty of attainment varies. 

Class I (a) Sometimes an absolute limitation of 
supply. 

The value depends on scarcity and on the proportion 
between supply and effective demand, p. 548. 

Classes 2, 3 {d) Most things depend only on the 
labor and expense of production. 

General Demand = General Supply. 

An equat{o7i and not a ratio ^ for there can be no ratio between 
two things not of same denomination ; as, between a quantity 
and a desire, p. 549. 

Therefore, no general overproduction is possible. Par- 
ticular overproduction is possible because a varying 
amount of the general production is devoted to the pur- 
chase of given things. 

If demand and supply are unequal, they are equalized 



44 

by competition. The price rises and falls until the mar- 
ket value is just that which will carry ofl^ the existing or 
expected supply. 

Few commodities are naturally limited in supply, any 
commodity can be limited by artificial monoply. p. 552. 

The supply of some things is temporarily limited ; e, g., agri- 
cultural produce, and things which take a long time in manu- 
facture. Until the supply is increased, the value rises with the 
demand. 

Things which can be easily multiplied, but can be diminished 
only by destruction, have their value regulated by supply and de- 
mand. This will rise as the stock wears out until the production 
is renewed, p. 553. 

Labor depends on demand and supply, as it can easily 
be increased or diminished in amount, p. 554. 

Chapter III. 

COST OF PRODUCTION, IN ITS RELATION 
TO VALUE. 

A minimum value is always extant which determines 
whether an article will be produced or not. Unless the 
market value will repay the cost of production and yield 
ordinary profit, the article will not be produced, p. 

555- 

Necessary value 1= cost of production and ordinary 
profit. 

When competition is free, neccessary value is all that 
can be expected. For if profit is greater, capital rushes 
in, the supply is increased, and values fall. p. 556. 

This does not imply that anybody gives up business, but it is 
all done by means of credit. That profits may be equal when the 
outlay is equal, things of the same cost of production must be of 
the same value. 

NATURAL VALUE, OR NATURAL PRICE, IS 

that v^lue of n thing which is proportionate to CQst of 



45 

production, or the centre value toward which market 
value gravitates, which is preserved by the variations in 
supply, p. 557. 

There is no need of any actual alteration in supply. The mere 
possibility often suffices to lower prices. 

The values of things that can be increased at pleasure 
do not depend on demand and supply. 

There is a demand for commodities at there natural value, and 
the supply tries to conform to the demand- When it does not 
conform, it is through miscalculation, or from a change in the 
problem, p 560. 

Either the natural value changes, or the demand varies owing 
to an alteration in the consumer's tastes. 

If a value other than natural value be necessary to make de 
mand equal supply, the value will change for a time only; for 
more or less than ordinary profit cannot exist, p. 561. 

RESUME. 

Class i. Demand and supply govern all things 
which are limited; except that even for these there is a 
minimum, determined by cost of production. 

Class 2. Demand and supply determine the changes 
of values, for short periods only, of things which are un- 
limited. They in turn are ruled by the gravitation of 
values toward cost of production, where all things would 
settle unless continually disturbed. 

Chapter IV. 

ULTIMATE ANALYSIS OF COST OF 
PRODUCTION. 

The cost of production to the producer is the labor expended 
in producing an article, p. 562. 

The principal component in cost of production is labor. 

Considering the capitalist as the producer, we may replace 
''J^abQr" b^ "Wages," p. 56^. 



46 

For tools, materials, etc., were produced by labor and capital, 
and their value depends on the cost of production = labor = 
wages. 

This shows that cost of labor = cost of production. . 

The value of commodities depends principally on the quantity 
of labor required for production, and also its remuneration, p. 

564- 

Labor = wages to the capitalist. Wages may vary with the 
same amount of labor. The values must depend on wages. 

The mutual relations of articles cannot be affected by causes 
which affect both alike, therefore — 

A rise or fall in general wages affects evei-ything equally, and 
so does not alter values, but a general rise of prices is possible. 
P- 565- 

General high or low wages do not affect values. 

High wages do not make high prices, for if this were true, 
there would be no real rise in wages, because if wages could not 
rise without raising the price of everything, there would be no 
rise at all. 

General high prices increase money returns and expenses 
alike, while high or low wages in industrial trades do affect 
values, p. 565. 

The produce of skilled labor is more valuable than that of 
unskilled, because the former is more highly paid. 

Owing to "noncompeting groups" wages in different employ- 
ments do not rise and fall simultaneously, but are nearly 
independent. Such disparities increase the relative cost of pro- 
duction, and will affect values, p. 566. 

The relative wages necessar}^ to production affect 
values as much as the relative quantities of labor, p. 567. 

Absolute wages and quantities have no effect. If they varied 
simultaneously in all trades there would be no effect. 

Capital is necessary to production as well as labor. 
The reward of abstinence (profit) must compensate for 
all abstinences, and all advances are part of the cost 
of production. 

Thus profits as well as wages determine cost of production, 
p. 568. 



47 

Formerly Mill did not include profits in outlay, now he in- 
cludes profits both of direct and indirect capitalists. 

Profits may enter more largely into the cost of pro- 
duction in one thing than in another, even though the 
rate of profits is the same, as one article may have to 
yield profit for niore time than another ; i. e, take longer 
to produce, p. 569. 

E. g. Wine which must be kept requires an additional outlay 
which must be compensated. 

Profits enter more into the cost of production of 
machine made articles than into that of those made by 
hand. They are like wine. For less wages are paid, 
and the difterence is paid as profits to the machine maker. 

P- 570- 

As profits enter unequally into the advances of capi- 
talists and therefore into returns demanded, it follows : — 

1 . Commodities do not exchange in the ratio of the 
quantity of labor necessary for production, not even 
allowing for unequal wages of various kinds of labor. 

p. 571- 

2. Every rise and fall of general profits will effect 
values. 

Not by raising or lowering them (an impossibility) but by 
altering the proportion in which values are aff'ected by unequal 
times. When two things requiring equal labor are of difterent 
values because of different times of production, this difference 
will be greater when profits are greater and vice versa. Wine 
and cloth will be more unequal at 40 per cent profit than at 20 
per cent. p. 572. 

Therefore a general rise of wages, when it involves increase 
in cost of labor, influences values, not by raising them univer- 
sallj', but by lowering profits, and thus diminishing the dif- 
ference caused by time. All machine made articles are lowered 
in value when profits fall. p. 573. 



Elements of Cost of Production. 

-labor 



rt I ?i ^ f* Q 

2. Artificial and casual. ^ 7 -r^ - * - r v 

b li,xtra cost from scarcity. 



. Natural andnecessary. •] z p. f^ 

lal. I 

Some taxes are part of cost of production and the outlay must 
return ordinary profits, p. 574. 

Taxation of certain articles only, would raise their 
value. 

Extra cost from scarcity affects natural agents. They have 
no value from appropriation, but from scarcity, p. 575. 

GROUND RENT IS PART OF COST OF PRODUCTION. 

These artificial elements increase cost of production 
because there is either more abstinence, or abstinence for 
a longer time ; thus they affect values. 

Chapter V. 
RENT, IN ITS RELATIONS TO VALUE. 

Class 3. Things which have several costs of produc- 
tion and are governed by the law of diminishing returns ; 
e. g. agricultural produce, p. 577* 

This class is intermediate between classes i and 2. 

If only the best land in the country is used, the price 
of corn will change only with casual variations in supply. 

P- 57S- 

As the population increases, the demand is doubled; it will 
not pay to cultivate poorer lands, or increase cultivation on good 
soils, owing to diminishing returns, unless the price rises; this 
will be brought about by increasing demand, and until the price 
is sufficient to pay for an additional quality, the value of the 
supply is a scarcity value. When the price rises to the natural 
price of the requii'ed quantity, it will be produced. 



49 

THE LAW OF VALUE FOR CLASS 3. 

The natural value of an article is determtned by the 
cost of that part of it which is produced and marketed at 
the greatest expense. 

Those who cultivate most favorable soils obtain for then- 
produce more than the cost of production, the difference between 
efficiency of their own and poorer soils. This is a privilege and 
must be paid for unless the farmer owns the soil. p. 580, 

The surplus produced by a part of agricultiu'al capital 
over what is produced by the same amount on poorer 
soils, or by higher cultivation, must be paid as rent, 
p. 580. 

Adam Smith says that the produce of land is always at a 
monopoly value, because in addition to ordinary profit it always 
yields rent. 

Objection. There can be no monopoly value when the supply 
can be indefinitely increased if we are willing to pay more, 
p. 581. 

Rent is no part of the cost of production of agricul- 
tural products. The least favorable land, or capital, pays 
no rent and determines the value of the whole product ; 
rent is no cause of value, but the price of the privilege 
conferred on all but the value-fixer, and is repaid by 
increased efficiency. 

Rent equalizes the profits of different capitals. If rent were 
abolished, the consumer would not be benefited, but the farmers 
would, as, if a part of the products had a high price, the whole 
would, p. 58-2. 

Nationalization of land would not benefit the laborers 
by lowering the price of food. 

Mines pay rent. 

Even the poorest maj'^ pay rent, as the grades are sharply 
defined, and the demand may raise the price above the cost of 
production of the poorest mine, without being high enough to 
make still poorer mines pay. In the interval, the produce is at 
a scarcity value, p. 583. 



50 

iPisheries pay rent. 

Owing to the same causes as mines. 

When a new mine or fishery is opened better than the poorest 
in vise, the scale will be disturbed, and a new regulator will 
come into use. p. 583. 

Ground rent, and rent for gardens, must equal or sur- 
pass the agricultural rent. 

Beautiful sites are a scarcity value. Convenient sites are on a 
par with fertile soil. p. 585. 

The ground rent must be higher than its own agricul- 
tural rent, not than that of better land. 

Warfage, docks, patents, all are similar. Superior business 
talents are similar, as the man can produce cheaper than the 
value-fixer and thus pays himself rent. p. 586. 

Chapter VI. 
SUMMARY OF THE THEORY OF VALUE. 

Short and concise. See text-book, p. 588. 



51 



VOLUME II. 

Chapter VII. 
MONEY. 

Money performs three services. 

1. A common measure, or denominator, of value. 

A common measure for values of different kinds is very neces- 
sary. In barter, calculations would have to be made on different 
data at every transaction, there would be no current price, p. 17. 

A common denominator is a standard to which the values of 
other commodities may be reduced for comparison, p. 18. 

2. A medium of exchange. 

A medium of exchange transfers value. Division of labor im- 
possible under a barter system. 

3. A standard of value for deferred payments. 

This is the means of comparing the purchasing power of an 
article at various times. This is distinguished from i only by 
the element of time. At the same time and place the standard 
of value is given in the common denominator of value, p. 19. 

THE REQUISITES FOR A PERFECT MONEY. 



I. 


Value. 


5- 


Divisibility. 


2. 


Portability. 


6. 


Stability of value. 


3- 


Indestructibility. 


7- 


Cognizability. 


4- 


HomxOgeneity. 







These requisites limit the list to a few articles. Gold and 
silver possess these qualities in the highest degree. 

There has been only one great alteration in the value of gold ; 
/. e. from American discoveries. The cost of production varies 
less than that of any other article, p. 20. 

Because of the durability of gold and silver, the total quantity 



52 

in existence is always so great, relative to the annual supply, 
that very little effect is produced by a change in cost of produc- 
tion, p. 20. 

By the process of coining, the metal is divided into convenient 
portions, Mrith recognized proportions. Thus frequent weighing 
and assaying is saved. 

The use of money makes no difference in values, as 
things are not really purchased w^ith it. Only the income 
of miners is derived from money. The real income of a 
person is his share in the goods produced. Money is 
merely a machine, and produces bad eff^ects when it gets 
out of order, p. 23. 

As money is a commodity belonging in class 3, its 
value is determined temporarily by demand and supply, 
permanently by production. 

Chapter VIII. 

THE VALUE OF MONEY, AS DEPENDENT 
ON DEMAND AND SUPPLY. 

The value of money is its purchasing power, and is 
inversely as general prices. 

When a person lends or pays money, what he transfers is not 
mere money, but the right to a certain value of produce to be 
selected at pleasure. Capital is really lent, but it is computed in 
money. Hence capital is often called money, p. 25. 

The value of money depends on demand and supply. 

The supply of an article is the amount offered for sale. We 
really buy and sell money, p. 26. 

The supply o^ money is all the money in circulation. 
The demand for money is all goods offered for sale. 
p. 27. 

The whole of goods = the demand for money, and 
The whole of money= the demand for goods ; thus they are 
reciprocally supply and demand. 

If the consumption of a community remains stationary and the 



S3 

money is doubled, demand of money for goods would increase, 
and thus consequently a rise of prices. This increased value 
would not benefit any one. 

Prices would rise in a certain ratio proportionate to the in- 
crease in money, while the value of money would fall in the same 
ratio, p. 29. 

The value of money varies Inversely as its quantity. 

This is peculiar to money. It is not true of commodities that 
a diminution of supply raises the value proportionately. The 
proportion varies owing to variations in demand. The amount 
which would be spent, being limited, will be affected by the dif- 
ficulty of attainment. The only limit to the demand for money 
is the absence of any more goods to offer in exchange, p. 30. 

Money laid out = value of goods purchased, but the quantity 
of money laid out does not equal the quantity in circulation. 

Each piece of money is used many times and must be counted 
for as many pieces as the number of times it changes hands. 

The quantity of goods on hand is a fixed quantity. The 
number of times resold is also a fixed quantity. 

The value of money depends on its quantity and the number 
of times it changes hands, p. 31. 

The amount of goods and transactions being the same, 
the value of money is inversely to quantity times rapid- 
ity of circulation. 

The quantity of money In circulation equals the money 
value of sold goods, divided by the rapidity of circulation. 

V = value of money. 

I 

0^:= quantity in circulation. V = 

Q^XR. 

K=z rapipity of circulation. 

The rapidity of circulation does not mean the number of pur- 
chases in a given time- Time is not to be considered. 

If a piece of money makes few purchases in a year because 
traffic is dull, or because of barter, this is no reason for low 
prices or high money value. How often it changes hands to 
perform a given amount of traffic, is the essential point, p. 32. 

Credit renders connection between prices and quan- 
tity of moneyless Intimate, p. 33. 



54 

Only' that part of money affects prices which is 
actually exchanged for goods. 

Money frequently enters a country, is invested, and leaves, 
having acted onlj on the market for securities, and not on the 
market for commodities. A foreigner invests his money and 
thus lowers interest, thus causing native capital to go abroad for 
investment, p. 34. 

The passage of money depends on the state of the loan 
market, not on the state of prices. 

When a temporary increase of business is accompanied 
by a proportionate increase of money, prices are not 
raised, p- 35* 

Chapter IX. 

VALUE OF MONEY, AS DEPENDENT ON 
COST OF PRODUCTION. 

The ultimate regulator of its value is cost of produc- 
tion. 

Governments formerly stopped the exportation and melting of 
money, and also the importation of other articles, in order to 
encourage the exportation of other things. They drew into the 
country more money which they thought equalled wealth, this 
caused high prices, which they thought an advantage, but it is 
not really so. p. 37. 

When no charge is made for coinage, the value of 
money equals that of bullion. 

It cannot be worth more as bullion than as coin, for as it can 
be easily melted, the quantity in circulation would be lessened 
until its value equalled the same weight of bullion. Coin would 
be worth more than bullion, because it is manufactured, but as 
no charge is made for coinage the value is unchanged, p. 38. 

If government charges a seigniorage for coining, coin 
w^ill be to that extent more valuable than bullion, p. 39. 

The value of money conforms to the value of its metal, 
with or without the addition of the cost of coinage. 



55 

Money is usually a foreign product, and this modifies 
conclusions, p. 40. 

When money is a native product, it belongs to Class 
J, and is governed by law^ 3. 

If gold is above its cost value, money will be high and prices 
low. Low prices cause lower expenses of production, returns 
are also low, thus only the gold producer will be benefited, 
p. 41. 

Ajustment is slow^. 

Because money is durable and the supply is therefore immense. 
A small annual production makes up for the loss by wear and 
the use in the arts. If the increase were stopped, it would take 
long to diminish the present supply perceptibly. 

The quantity can be increased more rapidly than decreased, 
but the increase must be gi-eat to produce noticeable effects, 
hence the effects of all changes in conditions of production are 
for a long time merely questions of quantity, and depend but 
slightly on cost of production, p. 42. 

The durability of precious metals has excepted them 
from the law^ of cost of production. This is the cause of 
vast accumulation and also prevents its value from con- 
forming to cost of annual product, p. 42. 

But the value of money conforms, though slow^ly, to 
cost of production. 

Objection to law of value for money. Although money is gov- 
erned by ordinary laws, a special law is made for it. 

Answer. The law for money is simply the law of demand and 
supply controUed, but not annihilated, by cost of production, 
since the latter would have no effect on value if it could have none 
on supply, p. 43. 

There really is a closer connection between quantity and value 
of money than in the case of other things. With other articles 
the potential alteration is sufficient and actual alterations are 
temporary, except as the demand is affected and the supply 
altered as a consequence, not a cause, of alterations of value. This 
is true of gold and silver in the arts, but not of money, p. 43 . 



56 

Alterations of cost of production of metals do not affect 
value of money, except in proportion as they alter the 
quantity, this is not true of other commodities. 

Sometimes the potential change produces the usual 
effects, and money conforms more to law of supply and 
demand. 

The cost of production regulates the quantity finally, 
and there will always be money enough to perform all 
necessary exchanges, consistently with keeping up the 
value to the cost of production, p. 44. 

The average prices will be such that money will exchange for 
its own cost in other goods. Because the quantity always effects 
value, the quantity will be always kept at the amount necessary 
for doing, at those prices, all required business. 

Chapter X. 

A DOUBLE STANDARD AND SUBSIDIARY 
COINS. 

Gold and silver, though the least variable of all commodities, 
are not invariable in value, and do not always vary equally. 
When a gold coin is more valuable than a silver one, it will be 
melted, and silver will be the only money, p. 46. 

This is expressed by 

gresham's law. 

Money of less value drives out money of more value 
when both are legal tender. 

When both metals are legal tender at a fixed" valuation, the 
standard is subject to derangement from the fluctuations of either, 
p. 48. 

When one metal is legal tender and the other is coined and 
allowed to pass at its market value, the best results are secured. 
When gold is used thus, three regulations are necessary to keep 
the other metal in circulation. 

1. Silver must be made legal tender for small payments 

2. Silver must be rated above its gold value, so that it may 



57 

not become more valuable than gold hy a slight rise, and thus be 
driven out. 

3. The quantity of silver coinage must be limited, so that 
its overvaluation may not be a source of profit to individuals, 
p. 49. 

Chapter XL 

CREDIT AS A SUBSTITUTE FOR MONEY. 

Credit is only permission to use another person's cap- 
ital, and it cannot increase the means of production, but 
only transfers them. p. 50. 

The same sum cannot supply its entire value in wages and 
materials to two sets of laborers at once, but though capital only 
to the borrower, it is still a part of the lender's wealth. 

Credit causes a more effective use of capital, and by 
preventing loss by disuse, adds not to the capital in 
existence, but to that in employment, p- 51- 

Credit given to unproductive consumers is always a detriment 
to the wealth of a country, p. 53. 

Where credit is given, general prices depend more on 
the state of credit than upon the quantity of money, as, 
though not capital, it is purchasing power, and by cre- 
ating a demand for goods affects their price as much as 
money would. 

There are four kinds of credit. 

1. Simple book credits, p- 54- 

A keeps an account of what B owes him, and B does the same 
with A. At the end of the year the two accounts are compared, 
and a small payment balances them. 

2. Bills of exchange. 

A pays his debt to B by making over to him a debt due A by 
another person, C, by means of a transferable order on C which, 
when accepted ox signed by C, is a certificate of indebtedness. 

Bills of exchange were first introduced to save transportation 
of the precious metals. 



58 

A of New York sends B goods worth $ioo. C of Liverpool 
sends D other goods also worth $ioo. Thus A has a claim to 
$ioo in Liverpool while D owes the same sum there. D gives 
A $ioo, who is thus paid, and takes his claim on B. This claim 
is sent to C who presents it to B for payment. Thus all are 
paid without the use of money, p. 55. 

Bills of exchange are often drawn payable in six months 
instead of at sight. In that case, the bill is taken to a bank and 
discounted, i. e. the owner gets the cash minus the interest for 
the specified time. Of a number of bills of exchange, only one 
can represent real property, p. 56. 

"Accommodation" or "fictitious" bills are those not grounded 
on any previous debt. 

3. Promissory notes, p. 60. 

A promissory note is a promise to pay money, while a bill of 
exchange is an order to pay money. A Boston man sells $1000 
worth of shoes to a man in St. Louis, who pays for them by a 
promise to pay $1000 in a given time. This is usually taken to 
a bank and discounted. If payable in six months at 6 per cent a 
year, the Boston man gets $970. Such notes act as money, 
and render the same amount of coin unnecessary, but the issuer 
must keep enough money on hand to pay them when due. 

4. Checks. 

A has $100 in coin. He takes it to a bank and is credited for 
it. He then buys $50 worth of goods of B, and gives him a 
check for $50. B takes the check to his bank and it is placed to 
his credit. Thus no money is used. Such a transaction is pos- 
sible only when both use the same banker, otherwise B would 
take the check to A's bank and get cash. 

The clearing house is an arrangement to make all the banks 
of a city practically one establishment, p. 61. 

A clearing-house is a circular railing with as many 
openings as there are banks. A clerk from each bank 
leaves at the bank's opening all the checks which have 
been deposited in his bank, and notes the amount. 
These checks are claims on other banks for money. A 
clerk inside takes the checks, and distributes them to 



59 

the clerks of the banks against w-hom they are drawn. 
The checks that are left at a bank's opening are the 
claims of other banks against it. The sum of these 
claims is set ofl^ against the sum noted by the clerk at 
first, which constituted its claims on other banks. The 
difference for, or against, the bank is then settled by a 
check, p. 62. 

Chapter XII. 
INFLUENCE OF CREDIT ON PRICES. 

When there is an increase in the amount of money in circula- 
tion, prices rise, when there is a diminution, prices fall ; and 
credit produces this effect equally with coin. Bank-notes, bills 
of exchange, and checks have no independent action on prices. 
Money not in circulation has no effect on prices, p. 65. 

A man's possible demand for commodities is com- 
posed of all the money in his possession or due to him 
(this is transferred by check) and of all his credit 
besides, in the various forms of book credits, or bor^ 
rowed bank notes, p. 66. 

More or less of this p^urchasing power is used, as the prospect 
of profit seems greater or less. The use of this power tends to 
produce the very effect which caused its employment, z. e. a rise 
of prices. This rise in price gives a hope of further profit, and 
more credit is employed with the same eftects. When these 
speculative prices have risen above the rise which the original 
grounds for expecting a rise will justify, the rise stops. Then 
evei-ybody is anxious to sell to realize his gains, and so rushes 
into the market. This great supply thrown into the market 
causes a sudden drop in prices, and the consequent losses often 
wipe out the previous gains. This drop, when joined with an 
unreasonable panic causing almost a complete refusal of credit, 
is a commercial crisis and is caused solely by credit, and not by 
money or the failure of the crops, p. 69. 

Book credits serve only for a single purchase, but checks, 
bank notes, bills of exchange, and promissory notes, being 
transferable, perform all the functions of a currency, p. 75. 



6o 



Credit in form of bank notes is of more influence in 
raising prices than book credits, p. 79. 

Cheque-ci-edit has same effect, p. 82. 

Credit which is used to purchase commodities, affects prices in 
same manner as money. Prices do not depend upon money, 
but upon purchases, p. 83. 

The willingness to give credit depends, not on the 
quantity of currency, but on the supposed solvency of 
the debtor, p. S6. 

An inconvertible legal tender paper is money, but in- 
struments whose value depends on the solvency of the 
issuer are not money, but credit. 

Chapter XIII. 
AN INCONVERTIBLE PAPER CURRENCY. 

When it was found that pieces of paper, by bearing upon 
them a profession that they were equal to a certain sum of 
money, gave to the issuer all the benefits of possessing coin, 
governments began to use them, and, in addition, freed them- 
selves from the necessity of giving coin in exchange for the 
paper, the only thing which gave the paper any real value, p. 
88. 

An inconvertible paper derives its purchasing power 
solely from convention. 

A man will accept anything as money when he is sure that 
others will take it from him on the same terms upon which he 
received it. p. 88. 

The value of an inconvertible paper depends solely on 
supply and demand, and not at all on the cost of pro- 
duction. 

If there is more in circulation than is needed to perform the 
exchanges, it will depreciate. 

EFFECTS OF PAPER CURRENCY. 

Suppose the currency of a country is $1,000,000 of gold coin. 



6i 



Now let a paper currency be issued by the government to the 
amount of one-half the coin, /. e. $500,000. The prices of all 
commodities will rise one-half, and gold with the rest. An 
ounce of gold will be worth more as plate than as coin, and so 
will be melted. This melting will go on until an amount of 
coin has been withdrawn equal to the paper issue. Then 
prices will return to their former level, and the currency of the 
country will be $500,000 of paper, and $500,000 of coin. Suc- 
cessive issues will produce the same effects, until finally all the 
coin will be driven out of the country, p. 89. 

Up to this point, the same effects follow from an inconvertible 
or a convertible paper. Now, if still another issue is made, 
prices rise as before, and coin is in demand for melting. 
Although there is no coin in circulation, if the paper is con- 
vertible, coin may be obtained from the issuers in exchange for 
notes, and all this extra issue will be presented for payment; 
thus the supply will be proportioned to the demand and cannot 
depreciate. But if the currency is inconvertible, there is no such 
check, and unlimited depreciation follows, p. 90. 

Such a depreciating power is an intolerable evil, as it deranges 
business. An income of $100 in paper may be worth only $50 
in a year. 

It was in order to avoid just such variations that gold and 
silver were taken as the standard of value. Such depreciation 
can be prevented with an inconvertible paper by contracting the 
issues whenever the market value of bullion is above the mint 
price ; this is practically equal to a convertible paper, but is 
much more liable to abuse by over-issue, p. 92. 



FALLACIES OF AN INCONVERTIBLE PAPER CURRENCY. 

I. Paper cannot be issued in excess as long as it 
represents property, p. 94. 

This theory confounds two distinct evils of a paper currency. 
(«) The insolvency of the issuer, which would render valueless 
the promise to pay. (3) The tendency to depreciation by over- 
issue as in the case of the French assignats. p. 95. 

It is evident that if the property represented cannot be claimed 
in exchange for the paper, it differs in no way from an incon- 
vertible paper, as there is no check by redemption to over-issue. 



62 



2. An increase of the currency quickens industry by 
causing a rise in prices. 

If the rise of prices increases a man's income, it also increases 
his expenses, and thus produces no effect. In titnes of specula- 
tive high prices, men gain, not because they expect the present 
prices to last, but because they expect them to fall. Whoever 
realizes then, will have more dollars after the fall, without their 
being of less value, p. 97. 

When commodities rise unequally, some gain while others 
lose. Thus there is no real gain. 

An issue of notes is a gain to the issuer, as, until the notes are 
returned for payment, he obtains the use of them as if they were 
real capital. When the paper mearly supersedes coin, this gain 
is a loss to nobodj, as it merely saves the expense of the more 
costly material. But if notes are added to a paper circulation, 
the gain to the issuer is paid by the depreciation of the currency, 
a tax is virtually levied on the public for his benefit, p. 99. 

The debtor classes are also gainers, as, by paying their debts 
in a deprepreciated currency, they can escape from part of their 
obligations. Although this seems a great gain to the laborers, 
who are the principal borrowers, the loss of integrity and good 
faith is much greater than apparent advantage. 

Chapter XIV. 
EXCESS OF SUPPLY. 

THE DOCTRINE OF GENERAL OVERPRODUCTION OF 
WEALTH. 

1 . There is sometimes an excess of productions in 
general beyond the demand for them. 

2. When this happens, purchasers cannot be found at 
prices whicli will repay the cost of production with a 
profit. 

3. Consequently, there is a general depression of 
prices or values (no clear discrimination between 
them). 

4. The cause of this is the too rapid accumulation of 



63 

capital, which must be kept down by an ample unpro- 
ductive consumption, p. 107. 

mill's answers. 

Demand means either the desire to possess, or the means of 
purchase. 

a. If the community does not lack the desire to possess, it 
must lack the means of purchase. But this is impossible, as all 
commodities are the means of payment for all other commodities, 
through the medium of money. If we double the supply of 
commodities in a country, we double the purchasing power. 
Everybody will be able to buy twice as much, as he will have 
then twice as much wealth as before. Thus general values 
remain unaffected, while prices depend merely on the quantity 
of currency. (In the case of parh'ctilar commodities, the rela- 
tive values might change, as the community might prefer to 
m.ore than double its consumption of one commodity, and only 
increase slightly its demand for some other commodity. The 
total demand for the two, however, would be doubled.) 

b. If the desire to possess is supposed to be lacking — i.e. that 
all who have an equivalent to give already possess all the con- 
sumable articles they Avish — the fact that production continues 
proves that this cannot be the case, as no one will work if he 
already has everything he wishes. 

If a foreigner should come into a country where everybody' 
had everything he wanted, and should produce something of 
which there was already enough, there would be overproduction 
of this particular article. But this overproduction was not the 
result of a lack of desire to possess, as the foreigner certainly 
wanted something, but produced the wrong thing. If he could 
produce something new and desirable, the inhabitants would 
exert themselves to purchase the ncAv article, p. 108. 

Whoever brings additional commodities to market, 
brings additional purchasing power; also an additional 
desire to consume, since otherwise he woidd not have 
produced these articles. Thus neither of the elements 
of demand can be wanting, when there is an additional 
supply, although the demand may be for other things 
than the proffered supply, p. 109. 



64 

In time of commercial crisis there is an undersupply 
of money, caused by the annihilation of the credit which 
formerly served as money, and not by an excess of pro- 
duction. This condition is only temporary, p. in. 

The notion of overproduction seems to be supported by the 
continual fall of interests and of profits. This is caused by the 
operation of the law of diminishing returns, which is bi-ought 
into action by the increase in population. Low profits are very 
different from a deficiency of demand caused by overproduction. 
This subject is treated Book IV, Chap. IV. p. 112. 



Chapter XV. 
A MEASURE OF VALUE. 

Measure of value = something by comparing with 
which any two other things, we may infer their rela- 
tion to one another, p. 114 

Money is thus selected as a complete measure of value. 

Econi mists seek a measure of value of the same thing 
at different times and places, p. 115. 

Thus a measure of exchange value is impossible. 

A MEASURE OF COST OF PRODUCTi ON =r a commodity 
invariably produced by the same quantity of labor, plus 
the fact that the same capital must be advanced for same 
length of time. p. 116. 

This, however, cannot exist in fact. We must always make 
allowance for changes in circumstances. 

Adam Smith thought corn and labor fitted to serve as a 
measure of value, p. 117. 

Objection: corn tends to rise with every increase of popula- 
tion and to fall with every improvement in agriculture. Labor 
varies in value in different countries, p. 118. 

Such measure of value is not a regulator of value, but is a 
means of knowing what it is and how it varies. 



65 

Chapter XVI. 

OF SOME PECULIAR CASES OF VALUE. 

Demand and supply always govern the market value 
of commodities, and also the fej'maneiit value of all 
things whose supply is not governed by free competition ; 
but under free competition, things (except Class i) ex- 
change in thr ratio of their costs of production, p. 120. 

WHEN TWO COMMODITIES HAVE A JOINT COST OF PRO- 
DUCTION. 

/. e. When they are produced by the same operation, and 
the outlay, although made for the sake of both, would be the 
same if one of the two were not desired 

Cost of production determines the simi of their prices, 
and the price of each one depends on demand and 
supply, p. 121. 

GAS AND COKE. 

A certain quantity of gas and the residuum of coke 
arc sold so that the price of the two just pays expenses 
anfl gives ordinary profits. If more gas is wanted, 
more coke will be produced. Suppose that there is no 
demand for this extra coke, it will be offered at a lower 
price. But this lower price together with the former 
price of gas will not pay expenses and profits, and the 
price of gas must be raised. The demand will naturally 
contract, and prices will become fixed when, — by the 
rise of gas and fall of coke, — so much less gas, and so 
much more coke is sold that all the coke is taken at a 
price which, together witli the price of gas, will give 
the usual profit, p. 122. 

The reverse. If more coke is wanted than is produced con- 
sequent on the existing demand for gas, its price will rise, as 



66 



the demand is greater than the supply. Production of coke will 
be stimulated, and the resultant gas can only be disposed of by 
lowering the pi'ice. Equilibrium will be reached when the 
demand for gas fits the demand for coke so that the quantity 
wanted of each is just that produced in making the other. 

AGRICULTURAL PRODUCE. 

There would be nothing peculiar in this case if it were not for 
the fact that most soils, although fitter for one article than 
another, are not absoluetly unfit for any, and that rotation of 
crops is necessary. If one soil were fitter for wheat, that alone 
would be grown there, while oats, for instance, would be grown 
on another soil ; thus the values would have no reference to 
each other as they ai-e in non-competing groups. If the demand 
causes both to be produced in competition on soils not especially 
adapted to either, their relative costs of production on these 
soils will determine their relative values. If the demand for 
wheat causes all the medium soil to be occupied, the value of 
wheat must be greater, and that of oats less than their relative ■ 
values as determined by their costs of production on that 
medium land. p. 123. 

Chapter XVII. 
OF INTERNATIONAL TRADE. 

The reason why things are imported which could be produced 
without dfficulty at home, is that it is cheaper to import than to 
produce them. When two things are produced in the same 
place, one is cheaper than the other because it is produced with 
less labor and capital. This does not apply in the case of distant 
places, and a thing is often sold cheapest by being produced 
elsewhere than where it can be produced with the least capital 
and labor. This cannot happen in adjacent places, as, if one 
place had an advantage over another, production would be 
transferred to the best place, as thus profits would be increased. 
This would be the case even between distant places, if capital 
and labor moved freely, but this is not the cas.e. The grea: 
differences in wages and profits in different parts of the world 
do not cause the expected movement of labor and capital on ac- 
count of distance and difference in forms of civilization, p. 127-S 



67 

Trade is determined, not by absolute cost of produc- 
tion, but by the difference of comparative cost, and we 
may often by trade obtain articles at a less expense of 
labor and capital than it cost the foreigner to produce 
them. p. 139. 

Ilhistration. 

Cloth 10 days' labor produces 20 yds. in England. 

15 "' " " 20 yds. in Sweden. 

Iron i€ " " " 25 cwt. in England. 

15 *' ** " 25 cwt. in Sweden. 

Here England has the advantage in both cloth and iron, jet 
trade will arise. England will send her 20 yards of cloth and 
get 25 cwt. of iron in exchange (for 25 cwt. of iron exchange 
for 20 yards in Sweden, as both take 15 days' labor to produce), 
and so gain two days' labor. Thus, England got for ten days 
labor what it cost Sweden 15 days to produce. This is because 
it is the difference in comparative costs that causes trade. 

CASES IN WHICH TRADE WILL OR WILL NOT ARISE. 

Case I. 

Corn 100 days' labor produces cloth in Poland. 

150 " " " " in England. 

Iron 100 " " " ' corn in Poland. 

150 " " " " in England. 

In this case although Poland has the advantage in 
both articles, no trade will arise, as the comparative costs 
are the same, while the absolute costs are different, p. 
130. 

Case 2. 

Corn 100 days' labor produces corn in Poland. 

200 " " " "in England. 

Iron 100 " " " cloth in Poland. - 

150 '-' " " •' in England. 

Trade would arise. England's gain would be a saving 
to the world, as Poland loses nothing, p. 130. 



68 



Industry is most productive when each of two countries is 
engaged in producing, both for itself and for the other, the 
thing in which its labor is relatively most efficient, p. 131. 



THE ONLY REAL ADVANTAGE OF TRADE LIES IN THE 
IMPORTS, NOT IN THE EXPORTS. 

The idea that the advantage is in the exports is a relic of the 
"Mercantile Theory" which said that money was the only wealth ; 
thus exchanging goods for money, or exporting, was the only 
way to prosper, while exchanging money for goods, or import- 
ing, was sure to impoverish a country, p. 133. 

Really, a country produces an exportable article because it is 
the cheapest way to obtain other things; not because it is under 
the necessity of producing the export, because if there is no 
demand for it the product will be wasted, or if not produced, the 
corresponding capital will remain idle. If the exportation were 
prevented, production of it would cease, and imports would 
necessarily fiill off to the same extent, as the country would 
have nothing to offer in exchange. The capital employed in 
producing the export would now be occupied in producing the 
articles formerly imported. As the cost of production would be 
greater the value and price of the former imported articles 
would rise, and the loss would fall on the consumers of the 
articles, p. 133. 



INDIRECT BENEFITS OF FOREIGN TRADE. 

1. Large production of an article tends to improve 
the processes of manufacture. 

2. Labor is stimulated to increased effort to obtain 
new commodities brought within reach by trade. 

3. Civilization is advanced by contact with other 
peoples. 

. 4. Good will is promoted between different nations, 
and war is prevented by the magnitude of commercial 
interest^, p. 135^ 



69 

Chapter XIV. 
OF INTERNATIONAL VALUES. 

The value in any country of a foreign commodity 
depends, not on its cost of production where it is made, 
but on the value of the home produce which must be 
given in exchange, p. 137. 

If the United States imports wine from Spain, and gives a 
bale of cloth in exchange for every cask, the cost of the wine 
depends on the cost of production of the cloth in the United 
States, not on that of the wine in Spain. If the wine costs to 
days' labor, and the cloth 20 days', the cost of the wine in the 
United States will be 20 days plus the cost of carriage and the 
importer's profit. If both articles are made in the same coun- 
try, they will exchange in the ratios of their costs of production, 
but, as they are made in different countries, they are in non-com- 
peting groups, and this law does not apply, p. 138. 

Exchange value is the quantity of one article that will 
be given for a certain quantity of another article. This 
is governed by supply and demand, p. 138. 

Demand and supply' cannot carry the exchange value in either 
country beyond the limit set by their costs of production. 

The question, who pays the cost of carriage, depends, like the 
question, who gains the most, on demand and supply. 

Cost of carriage is a kind of natural protection. There are 
many articles whose relative costs of production differ so little 
in different countries that the whole saving by importing is more 
than counterbalanced by the cost of carriage, p. 139. 

THE OPERATION OF THE LAW OF RECIPROCAL DEMAND. 

Broadcloth 10 days' labor produces 10 yds. in England. 

20 "• " " 10 yds. in Germany. 

Linen 10 " " " 15 yds. in England. 

20 " " " 20 yds. in Germany. 

In England 10 yards of cloth exchange for 15 of linen. 
In Germany^io " '* '^ '♦ ^' 3q " '* 



70 

It would be England's interest to import linen, and Germany's 
to import cloth. 

After importation begins, lo jards of cloth will exchange- for 
the same number of yards of linen in both countries; if for 15 
yards of linen, England will be as before and Germany will gain ; 
if for 20 yards, England alone will gain; if for some number 
between, (as 17) both countries will gain. 

The demand for an article varies with the price, p. 140. 

Case I. The relative demands are equally intense. 

When 10 yards of cloth equal 17 of linen, there is a demand 
in Germany for a particular number of yards of cloth, say 1000 
times 10 yards, and in England for a particular number, say 1000 
times 17 yards. Thus the demand on each side just equals the 
supply. 

Case 2. England's demand is less than Germany's. 

Suppose England desires only 800 times 17 yards of linen, 
while Germany desires 1000 times 10 yards of cloth. Thus 
Germany could only get 800 times 10 yards at the price of 10 
for 17. To get the extra 200, she would have to offer more linen, 
say 18 yards. At this price England would demand 900 times 
18 yards, while the rise in value of cloth would decrease the 
demand of Germany to 900 times 10 yards. Then the demand 
would again equal the supply, p. 141. 

Case 3. England's demand is greater than Germany's. 

At 10 for 17, England desires 1200 times 17 yards of linen 
while Germany desires 1000 times 10 yards. England would 
offer more cloth, say II yards for 17 of linen. Then England's 
demand would fall off to iioo times 17 yards, and Germany's 
increase to iioo times 11 yards. 

Demand will again equal the supply, p. 142. 

When more than two comi-fiodities are considered, the aggre- 
gate exports must exactly pay for the aggregate imports, p. 146. 

A country gets its imports cheaper, (^) the greater 
the foreign demand for its exports ; {b) the smaller its 
own demand for foreign products, p. 147. . 



71 



THE LAW OF THE EQUATION OF INTER- 
NATIONAL DEMAND. 

The produce of a country exchanges for the produce 
of other countries at such values as are required in order 
that the whole of her exports may exactly pay for the 
whole of her imports, p. 149, 

This law is merelj an extension of the law of supply and 
demand. 

An improvement in an exportable article is likely to 
be as beneficial, (if not more beneficial) to foreign 
countries, as to the country where it is produced, p. 153. 

Under the supposition of a demand exactly in proportion to 
the cheapness, the law of international value will be : 

The whole of the commodities which the two countries 
can respectively make for exportation, with the labor and 
capital thrown out of employment by importation, will 
exchange against one another, p. 15S. 

The values at which a country exchanges its produce with 
foreign countries depends (i) on the amount and extensibility 
of their demand for its commodities, compared with its demand 
for'theirs, and (2) on the capital which it has to spare, from the 
production of domestic commodities for its own consumption, 
p. 162. 

Thus there are two senses in which a country can 
get articles cheaper by trade. 

I . In the sense of exchange value. These imported 
articles fall in value relatively to others. 

The same quantity of these articles exchanges for a smaller 
quantity of o.ther articles. That is, the/;-?ce falls, as less money 
is given for the same quantity, p. 163. 

3. In the sense of cost of production. The country 
gets the same quantity of the imported article with a 
less expenditure of labor and capital ; i. e. in proportion 
to the general efficiency of its labor, p. 164. 



7^ 

Chapter XIX. 

MONEY, CONSIDERED AS AN IMPORTED 
COMMODITY. 

Money is usually an imported article, and is conse- 
quently governed by the law of international values, p. 
i66. 

Money enters a country in tw^o ways. 

1 . It is imported as bullion like other merchandise. 

2. It is imported as a medium of exchange to pay 
debts due the country. 

This last is peculiar to money and renders special exposition 
necessary. 

When the precious metals are imported as articles of com- 
merce, they conform to the same laws as other foreign products, 
and are usually a regular article of export Trom the mining 
countries. The quantity of produce which a country, as 
England, will give for a certain quantity of bullion depends on 
the intensity of her demand for bullion compared with the 
strength of the demand of the mining country for England's 
products. The total of England's imports, including bullion, 
must just balance her exports. The demand for money increases 
with the cheapness in a regular way. p. 167. 

The cost of bullion depends, — 

I. On the quantity of goods given in exchange. 

3. The expense of transporting the goods over and 
the bullion back. 

Both these depend on the distance from the mines, and the 
former is much influenced by the bulkiness of the goods. Both 
countries bear a part of the cost of carriage, the exact amount 
beincr determined by the adjustment of international values, p. 
168. 

Prices are highest, i.e. bullion is cheapest, in coun- 
tries whose exportable products are : 
(i) Most in demand abroad. 



73 

(2) Which contain the greatest value In the smallest 
bulk. 

(3) Which are nearest to the mines. 

(4) Which have the least demand for foreign prod- 
ucts. 

(If we speak of "cheapness" in the sense not of exchange, 
value, but of cost in labor and abstinence we must add 5, which 
does not, however, affect the value of money in commodities, 
but affects the facility with which all things can be obtained.) 

(5) Whose productive industry is the most efficient, 
p. 169. 

Therefore the value of money, in countries which 
import it, docs not depend either on its value in the 
mining countries, or on the cost of production ; but 
depends solely on the equation of international demand. 

THINGS WHICH CHEAPEN THE IMPORTS OF A COUNTRY 

{{jicludijig biillioii). 

1. The opening of a new branch of export. 

2. An increase in the foreign demand for her exports, either 
naturally, or by the abrogation of duties. 

3. A check to the demand for imported articles, either on 
account of import duties, or export duties laid by other countries. 

Any of these would cause imports no longer to equal exports, 
and foreign countries would have to offer their products cheaper, 
in order to restore the balance by the consequent increased 
demand, p. 170. 

The whole of the exports of a country equal the whole 
of her imports, not the exports and imports to and from 
any one country. 

Thus a country wiiich exported nothing to mining regions 
might obtain its bullion cheapest, by obtaining it indirectly, 
p. 171. 

Chapter XX. 
THE FOREIGN EXCHANGES. 

The exports and imports are not exchanged directly, but are 
separately paid for by money, which, however, is seldom trans- 



74 

ported, as bills of exchange are used. When imports equal 
exports, all transactions can be settled by bills of exchange; but 
if there is a difference, money must be sent to balance. Money 
is not sent directly, but remittances are still made by bills of 
exchange. This is done through brokers who h^y and sell the 
various bills. Now if there is a greater demand for foreign bills 
than for domestic, the brokers will charge a premium, p. 173. 

A premiu7M is an extra charge on bills of exchange 
sufficient to cover the frieght and insurance on the coin, 
and also pay the broker a profit, p. 174. 

The brokers charge less than it would cost to send the mo ne 
directly, and although only a few would really have to send coin, 
all would have to pay the premium on account of each other's 
competition. 

The reverse happens when the exports of a country exceed 
her imports. There is an excess of foreign bills which are 
consequently at a discount. The competition among brokers 
causes the benefit of this to be given to those who buy foreign 
bills. 

"The Exchange" means the power which the money 
of a country has of purchasing the money of other 
countries. 

Exchange is at par when exports equal imports. 

The same number of bills of each kind would be offered in 
both countries, and hence would just balance, p. 175. 

Exchange is against a country when imports exceed 
exports. Bills on foreign countries are then at a 
premium. 

If the United States had a larger sum to pay in England than 
to receive, there would be more persons wanting bills payable in 
England, than there were persons wishing to sell English bills. 
A bill on England for $1,000 would sell for more than $1,000. 
Thus $1,000 of American money are worth less than their 
real value of English money. Those who have to pay money in 
England lose the premium, and those who have money to 
receive there gain the premium by selling their bills here. 



■ 75 

Exchange is favorable to a country when export^ 
exceed imports. Bills on foreign countries are at a 
discount. 

If a balance is due the United States from England, $i,ooo of 
English money will sell for less than $i,ooo of American money. 
This is exactly the reverse of the above, p. 176. 

When the United States has more to pay than to receive, 
England has more to receive than to pay, therefore when 
bills on England are at a premium here, bills on the United 
States are at a discount in England. 

The shipping point is reached when the premium or 
discount exceeds the cost of sending coin. 

In this case 'it will be cheaper for a man actually to send gold 
than to pay the premium or discount. 

The premium seldom reaches the shipping point, as the 
credit generally given allows payment to be deferred until the 
balance is restored by the self adjustment of exchange. Bills 
are at a premium because the imports exceed the exports. The 
premium is an extra gain to the exporter, as he can sell the 
English bill of $1,000 sent him for sa.y $1010, Thus he will be 
encouraged to export. The Englishman will be less inclined to 
export as a bill of $1,000 due here will be worth only $990 to 
him. Thus all small variations are corrected. It is evident 
that if the increased exports equal the diminished imports there 
can be no premium or discount, p. 179. 

Disturbances of the equilibrium of imports and exports 
are of two classes. 

I Small accidental distiu'bances which correct them- 
selves as above without shipping bullion. 

2. Disturbances arising from the state of prices, which 
cannot be corrected except by a subtraction of money or 
credit from the circulation of one country, p. 179. 

ARBITRATION OF EXCHANGE. 

Since only /"<?/«/ exports equal total imports, the United 
States may owe a balance to England and have a balance due 



76 

from Holland. There will then be no premium, as the United 
States will pay its debts to England with the bills due her from 
Holland, p. i8o. 

N.B. Sometimes different countries are used in the illustra- 
tions than will be found in the text-book, in order that the 
pri7iciple may be brought out more clearly. 

Chapter XXL 

THE DISTRIBUTION OF THE PRECIOUS 

METALS THROUGLI THE COMMERCIAL 

WORLD. 

The trade between nations tends to the same equili- 
brium between exports and imports whether money and 
bills are used or not, and the same means are used in 
both cases to restore the balance, p. i8i. 

If the United States imports more than it exports, a balance 
will be due to some other country, say England. Under a bar- 
ter system the exports must be offered cheaper, so that by means 
of the increased demand the exports may equal the imports. 
When money is used, the United States takes the imports at the 
same price as before, and pays the balance in money. This 
payment in money will evidently have to be kept up until the 
exports are increased, or the imports are reduced. This can be 
done only through prices, p. 182. 

When the state of prices in the two countries is such 
that the United States requires more imports than it c-in 
pay for by its exports, it is a sign that the United Stales 
has an excess of coin in circulation. The balance can 
be restored only by contracting the currency. 

By the continued shipments of coin the cun-ency in the 
United States is diminished and that of England increased. As 
prices depend directly on the quanity of money, they will fall 
in the United States, and the increased cheapness will cause 
England to import more. Owing to the rise of prices in Eng- 
land consequent on the enlarged currency, less will be imported 



77 

into the United States. The outflow of coin to England will 
continue until, by diminishing the total imports and increasing 
the exports, the balance is restored. Thus under a money sys- 
tem, by nieans of a fall in prices, the United States offers her 
exports at a cheaper rate. p. 183. 

The law of international values, and, consequently, the division 
of the advantages of trade, are the same, on supposition of 
money, as they would be in a state of barter, p. 185. 

WHO GAINS THE BENEFIT OF AN IMPROVEMENT IN THE 
PRODUCTION OF AN EXPORTABLE ARTICLE.'' 

Such improvements are eitlier {a) the creation of a 
new export, or (.<^) the cheapening of an old export, p. 
186. 

a. (i) The price of the new export falls in the United States. 
A demand consequently arises for it in England. This disturbs 
the balance of trade, and the exports of the United States exceed 
her imports, the balance is paid in money, and {2) prices rise 
in the United States. (3) These higher prices will lessen Eng- 
land's deinand for all the exports of the United States, while, 
owing to the shipments of coin, the United States will have 
more money with which to buy foreign articles. If this in- 
creased purchasing power is used, there will be an increase of 
imports. Ttie balance will be restored anyway, either by in- 
creasing imports, or by diminishing exports. 

Results of (<7). I. England will have to pay more 
for all other exports, but will get the new one cheaper. 

p. .87. 

The United States will get the new export cheaper than Eng- 
land, although the price is the same in both countries. Cheap- 
ness is measured not by money price, but by the price as com- 
pared with the income of the consumers. The incomes in the 
United States have been increased by the coin sent by England, 
where the incomes have been diminished in the same proportion. 
Thus England only gets part of the benefit from the cheapening 
of the new export. 

^, The United St^^tes gains the fiiU benefit of the 



78 

cheapening of the new export, and gets all imports 
cheaper owing to the fall of prices in England. 

b. An old export, say cotton cloth, is cheapened. Its price 
falls and the foreign demand increases, (i) If the foreigners 
spend as much money as before on cloth, the balance of trade 
will be undisturbed, p. i88. 

Result of 3 (i). Foreigners will gain the full advan- 
tage of the improvement, as they will get more cloth for 
the same money. 

b (2). If the increased cheapness causes moi-e money than 
before to be spent on cloth, the excess will have to be paid in 
money, prices in the United States will rise. 

Result of ^ (2). Both gain, but the United States 
will also gain by having her incomes raised, and will 
thus gain more than England by the improvement, as 
England's incomes are reduced, p. 425. 

b (3). If, while the same aiT)ount of cloth is bought, less 
money is paid for it, the balance will be against the United 
States which will export money; prices will fall. 

Result of ^ (3). The opposite oi b. 2. 

The use of money as a medium of exchange never 
alters the laws on which the values of other things 
depe7td^ nor does it alter the law of its own value as 
merchandise, p. i8g. 

RESULTS OF NON-COMMERCIAL PAYMENTS LIKE TRIB- 
UTE OR INTEREST ON SECURITIES, p. I9I. 

When the remittances are made in commodities, no return is 
expected for these exports. Exports must exceed iinports by 
the amount of the remittance. If trade was in equilibrium 
before these remittances began, imports must be lessened, or an 
increased demand must be created for its exports by offering 
them cheaper. 

Result. The debtor countr}^ besides losing what it 
pays, loses also by the less advantageous terms on which 



79 

it exchanges its own for foreign articles, which the 
creditor gains in both ways. 

The use of money makes no difference. As trade is in equili- 
brium, the first remittance must be made in money. Prices are 
lowered in the debtor country, and raised in the creditor one. 
Exportation from the debtor country is stimulated and importa- 
tion is checked. Thus on the score of trade a balance is due 
from the creditor to the debtor. When this balance equals the 
payment, equilibrium will be restored, and the above i-esults 
will follow, p. 192. 

THE LAW OF THE EQUATION OF INTERNATIONAL 
DEMAND. 

Equilibrium is reached when a country is able by 
means of her exports to discharge all her foreign liabil- 
ities. 

Chapter XXII. 

THE INFLUENCE OF THE CURRENCY ON 

THE EXCHANGES AND ON FOREIGN 

TRADE. 

The exchange value of gold and silver may vary owing to 
changes in their cost of production, or on account of variation 
in the demand for them in the arts. Their value may increase 
owing to greater business transactions which cause a demand 
for more coin, or may diminish owing to the substitution of 
credit for coin. p. 193-4. 

THE EFFECTS ON TRADE OF TEMPORARY VARIATIONS 
IN THE VALUE OF MONEY. 

If the coin currency of a country is suddenly increased, as by 
the discover^' of concealed treasures, its value will fall and 
prices will rise. Then the exports will be diminished, and the 
jmports stimulated. The consequent excess of imports will be 



8o 



paid for in coin, and the flow will continue from one country to 
another until the prices have risen equally in all countries. 
Thus all imports will equal exports although all will have an 
increased money price. The lessoned value of bullion will 
diminish production at the mines, and this will continue until 
an amount equal to the treasure has been destroyed by wear, 
p. 194. 

The same results would follow if bank notes were added to the 
currency. 

Prices would rise, imports would exceed exports, and the 
surplus coin would be sent abroad. This would continue until 
prices were equally raised everywhere, p. 196. 

Besides this, the coin is replaced by a cheaper money, and the 
diflerence is a clear gain to the issuers of the notes; if the gain 
is used productively, the country is as much benefitted by this 
as by any other capital. 

For this reason paper should always be substituted for coin, as 
far as is possible without endangering its convertibility, p. 
199. 

When the paper exceeds in quantity' the coin it replaces, 
prices will rise; an article formerly worth $25 in coin will be 
worth $30 in paper. But this does not stimulate importation, as 
the foreigners reckon on a. coin basis as before, p. 200. 

Thus a depreciation of the currency does not affect the 
foreign trade. 

The exchanges, however, are affected. $30 of United States 
paper is worth only $25 in England, so that a bill on England 
for $25 costs $30 in paper. When the real exchange is at par, 
there will be a nominal exchange against the paper country 
equal to the depreciation. When the exchanges are really 
against a country, the quoted exchanges are composed of (i ) the 
real exchange, which depends on international trade; added to 
(2) the nominal exchange caused by depreciation. The amount 
of depreciation is measured by the difference between the market 
price ofbuUion and the mint price, p. 201. 

The use of credit raises prices just like an increase of the 
currency. Imports are stimulated by the rise, and the shipments 
of gold to pay the balance contract the coin currency. Prices of 
course fall, and a panic follows which causes a commercial 
crisis, p. 202. 



8i 

Chapter XXIII. 
THE RATE OF INTEREST. 

The gross profit of capital is divided into, 

1. Renumeration for risk, called insurance. 

2. Wages of Superintendence. 

3. Interest. See Book II, Chap. XV. 

The rate of interest depends on demand and supplj. What is 
usually called interest is composed of insurance plus the real 
interest, p. 203. 

The deinand for loans consists of the amount desired by those 
producers who can use borrowed capital profitably, plus the 
amount required for government loans. The supply consists of 
the capital of those who do not care to enter into production 
themselves, plus the sums collected by the banks. 

I. If this capital exceeds the desire for loans, lenders will 
offer it at a lower rate of interest. In this case the borrowers 
will take more capital, and sujiply will again equal demand, or 
the lenders will take greater risks, and much of the excess of 
capital will be lost by unsuccessful enterprises, while the low 
rate of interest Avill discourage the further increase of capital, 
p. 205. 

II. If this capital is less than the borrower's demand, the rate 
of interest will rise, the demand will be checked, and many bor- 
rowers will retire from business and lend their own capital. The 
high rate will stimulate the accumulation of capital. 

When capital is supplied by professional money-lenders, they 
must have compensation for risk, interest, and a further profit 
corresponding to wages of superintendence. . The monej'-lender 
lends his credit — the borrowed capital for others — lor which he 
pays insurance and interest. A bank which lends its notes pays 
no interest on its borrowed capital. A bank of deposit collects 
small sums and pays no interest. Thus banks, paying no interest 
themselves, can get the ordinary rate of profit on their capital by 
lending at lower rates, p. 206. 

While the relation between total loanable capital and the de- 
mands of producers fixes the permanent rate of interest, \.\\Q.Jiiic- 



82 



tuatiojis depend on the supply in the hands of banks which, being 
lent for short times, is always in the market. The capital of 
non-producers is usually in some fixed investment like govern- 
ment bonds, p. 207. 

In the beginning of speculation, money-lenders are more willing 
to lend, and interest is low. At the collapse of speculation, in- 
terest is high because, while many desire to borrow to keep 
themselves from failing, the money-lenders are afraid to lend. 
When a series of failures has created a general distrust, nobody 
will give credit, and a panic follows. Deposits are withdrawn 
from banks, and bankers raise their rates. When large govern- 
ment loans are offered, the rate of interest rises, and the amount 
thus used is taken away from production. Other tempting in- 
vestments, such as railways, tend to raise interest in the same 
way. p. 208. 

The rate of interest depends, not on the quantity of 
money in circulation, but on the relation between the 
amount of loanable capital and the demand for it. 

An increase of the currency by paper issues has no 
eflect on the rate of interest, p. 210. 

The price of land and other investments which give a 
fixed income depends on the rate of interest. When in- 
terest is low, prices are high, and vice versa, p. 213. 

A lot of land giving a rent of $100 dollars would sell for $1000 
if the rate of interest was 10 per cent. If afterward the rate de- 
creased to 5 per cent, the land would sell for $2000, since $ioo 
is 5 per cent of $2000. 

Chapter XXIV. 

THE REGULATION OF A CONVERTIBLE 
PAPER CURRENCY. 

Many believe that banks of issue generally, or the Bank 
of England in particular, have a power of throwing their 
notes into circulation, and thereby raising prices arbi- 
trarily, p. 215. 



83 

This theory has gone to such an extreme that a counter-theory 
has arisen, namely : — 

That bank notes, so long as their convertibility is main- 
tained, have no power whatever, of raising prices, p. 317'. 

Two states of the market: (i) the quiescent state, — no desire 
to extend operations; and (2) the expectant state, — a strong 
desire to speculate, p. 218. 

Credit is then largely employed, p. 220. 

Reply : — Increase of circulation always follows instead of pre- 
ceding the rise of prices, and is not its cause, but its effect. 

Mill claims that the effect of a considerable increase of 
bank-notes is to prolong the duration of the speculations. 

p. 321 . 

This usually results in a more sudden contraction of credit 
than would have been necessary, p. 222. 

To prevent this, the English Parliament has passed an 
act providing that the paper currency shall vary in its 
amount in exact conformity to the variations of a 
metallic currency, p. 330. 

/. e., the result is the same as if the currency were withdrawn 
from circulation. 

However, exportations of pi"ecious metals often arise from no 
causes affecting currency or credit, but simply from an unusual 
extension of foreign payments, p. 231. 

This Act of 1844 is beneficial in its operation in the 
first stages of a commercial crisis produced by over- 
speculation, and yet on the whole, materially aggravates 
the severit}" of commercial revulsions. 

The proceeding of the bank under a drain are not determined 
by the amount of gold within its vaults, but by the portion of it 
belonging to the banking department. 

With its narrow margin to operate on, it must meet all drains 
by counter-actives more or less strong, to the injury of the com- 
miercial world; — hence, tbQ variations of the rate interest, p 
242, 



84 

Two questions remain : 

1. Should the privilege of providing a bank-note currency be 
confined to a single establishment, as the Bank of England; or 

2. Should a plurality of issuers be allowed, p. 243. 
Answer, (i) This exclusive privilege is a source of great 

pecuniary gain for the nation. 

(2) The competition of the different issuers would induce them 
to increase the amount of their votes to an injurious extent, p. 
244. 

Chapter XXV. 

THE COMPETI riON OF DIFFERENT COUN- 
TRIES IN THE SAME MARKET. 

The benefit of trade lies in the imports, and a coun- 
try gains niost when it can sell a few exports at a high 
price, and thus pay for its imports. Thus there is no 
benefit in '' underselling, " that is, selling exported arti- 
cles at a lower price than another country can sell the 
same articles. 

One country (India) can only undersell another (the United 
States) in a given market, to the extent of expelling her, on two 
conditions ; 

1. India must have a greater comparative advantage in pro. 
ducing the given article. 

2. India's trade relations to the cvistomer country must be 
such, in regard to reciprocal demand, that India gives her more 
than the whole advantage possessed by the United States, p. 248. 

Cloth 10 days' labor produces 10 yds. in England. 
10 " " " 10 " in Germany. 

Linen 10 " " " 15 " in England. 

10 " " " 20 " in Germany. 

England will send over 10 yds. and, owing to the strength of 
international demand, will get say 17 yds. in return. Now 
Germany cannot be expelled from the English market by 
being undersold unless some other country offers England not 
only more than 17 yds., but more than 20 yds. for 10 yds, 
p. 249. 



85 

The loss by the fall of prices will fall, not on the exporters, 
but on the consumers of imports, who with less incomes will 
have to pay the same, or higher prices, p. 250. 

Underselling, although a loss to the undersold countries, is a 
gain to the world, as less labor is expended in producing the 
article owing to some advantage possessed hy the underseller. 
These advantages maybe from better soil, better machinery, or 
more efficient labor. There is no place in this theory for ad- 
vantages of lower wages, which do not affect cost of production. 

The cost of labor is nearly the same everywhere ; 
when a laborer receives less wages, he is found to do 
less work. p. 351. 

Thus Belgium cannot undersell England, although her work- 
men are paid less. In America, the cost of labor is so low that 
it gives both higher wages and profits. p. 253. 

If wages in any industry which supplies exports are kept, 
artificially, or by some accidental cause, below the general rate 
of wages in the country, this is a real advantage in the foreign 
market, p. 252. 

Thus, in countries where the word is executed by slaves. 

DOMESTIC MANUFACTURES. 

These are industries which are carried on in the intervals of 
other employments by which the laborers are supported. Con- 
sequently, these domestic industries can be carried on with a 
much lower return than could possibly support a laborer who 
produced these articles exclusively, p. 253. 

The limit of cheapness in this case is not the necessity 
of living by the trade, but that of earning enough by the 
work to pay for this use of leisure time. 

General low wages do not cause low prices in a 
country, nor do they enable her to undersell others. 
High wages do not make high prices. See book TI, 
Chap. XI. p. 254. 

Expenses which affect all industries alike have no effect on 
prices. If higher wages are paid in one industry, the price will 



86 



rise, because otherwise the profits would fall below the average, 
and capital would leave the business. But if everybody has to 
pay higher wages, all profits are lessened alike, and prices are 
unaffected. 

General low wages do not make low prices, but do 
make high profits, p. 255. 

If wages fell in one industry', the consequent greater profits 
would attract more capital, and the price would fall by the 
competition. If profits increase in all industries by a fall in 
wages, ever\'thing will remain unchanged. 

If wages rise, profits fall. 

If profits rise, wages fall. 

Countries which have a low cost of labor and high 
profits dd not for that reason undersell others, but they 
ofler greater resistance to being unsold, as the producer 
can more easily submit to a reduction of profits, p. 355. 

Colonies, such as the West Indies, etc., should be looked upon 
as outlying agricultural or manufacturing establishments belong- 
ing to a larger community, p. 256. 

When profits were high, Venice had a monopoly of the carry- 
ing trade; as they fell, other countries with lower profits drove 
her out; and Holland, having the lowest rates of profit at home, 
finally drove all the others out, as she could afford to do it more 
cheaply, p. 257. 

Chapter XXVI. 

DISTRIBUTION, AS AFFECTED BY EX- 
CHANGE. 

The products of industry are divided into three shares, 
— wages, profits, and rents — and the use of exchange 
makes no difference, p. 359. 

Real wages are the commodities a laborer receives 
in return for his sacrifice. 

This is the only sense in which they are of importance to the 
laborer^ They include food, clothing, shelter, etc. p. 260. 



87 

Money wages are the quantity of money that he 
receives for his labor. 

In this sense only, wages are of importance to the employer. 
If the value of money and the efficiency of labor do not change, 
the money price is an exact measure of tlie cost of labor, p. 261. 

Money wages are composed of, 

1 . Real wages. 

2. The money price of the article contained in the 
real wages. 

WAGES. 

Wages depend on the ratio between population and 
capital. 

In countries where the positive and preventive checks act, the 
monej price of labor is just great enough to enable the laborers 
to purchase the real wages necessary to cause the laborers to 
keep up the population. If money wages fall, population 
decreases, and wages rise. Thus money wages depend on the 
money price, and therefore on the cost of production of the 
articles contained in the real wages. 

As the price of food depends on the productiveness of the 
poorest land in cultivation, so money w^ages depend on cost of 
production, p. 261. 

RENT. 

As the margin of cultivation is determined only by the 
population, the ensuing rent cannot be atlected by 
exchange, p. 263. 

PROFITS. 

Since wages and rent are unaffected by exchange, 
profits are also unaffected for the surplus, after paying 
wages and rent, is profits, p. 263. 

TWO WAYS IN WHICH COST OF LABOR MAY BE INCREASED. 

I. Real wages may rise, and consecjuently raise 
money wages. 



88 



(If real wages rise by the fall in price of 'commodities, money 
wages will be unchanged, and profits will be unaffected.) If 
commodities are no cheaper, and the laborer gets more of 
them (owing to some change in the ratio of capital to popula- 
tion)the increase comes out of the profits of the capitalist. He 
cannot remedy this by raising his prices, for general high wages 
cannot affect prices. 

If a rise in wages caused a rise in prices, there would 
be no real rise, as the laborer would get no more real 
wages with his increased money wages, p. 263. 

A rise of general wages must fall on profts. 

2. Money wages may rise from increase in cost of 
production caused by increased population. 

The extra quantity of food demanded would not be produced 
unless the price rose to compensate for the increased cost of 
production on account of "Diminishing Returns." The laborers' 
real wages being unchanged, his money wages must have risen 
to enable him to pay the increased prices, p. 264. 

An increase of general wages lowers profits, and a 
decrease increases profits. 

But there is no real opposition of interest. Real wages are 
7iot cost of labor, and are highest when, owing to natural advan- 
tages or efficiency of labor, cost of labor to the employer is 
lowest, p 266. 

The rate of profit and the cost of labor vary inversely 
as one another, and are joint effects of the same causes. 



BOOK IV. 

INFLUENCE OF THE PROGRESS OF SOCIETY 
ON PRODUCTION AND DISTRIBUTION. 

The economic condition of mankind is ever changing — 
we may call this thedjmamics of political economy. 

Chapter I. 
ACKNOWLEDGED AGENCIES OF PROGRESS. 

1. In leading countries there is an advancement in 
material prosperity from year to year. p. 272. 

2. Physical knowledge — ( /. <?., man's power over 
nature ) is unlimited in its growth. This is now rapidly 
converted into physical power. 

3. Security of person and property is continually 
increasing, p. 273. 

4. Business capacity of mankind is advancing, p. 

274- 

5. Continual growth of co-operation, p. 275. 

All these insure increase of production and accumulation. 

We must also admit an increase of populatoin as long-con- 
tinued, as idefinite, and possibly even as rapid as the increase of 
production and accumulation. 

Chapter II. 

INFLUENCE OF THE PROGRESS OF INDUS- 
TRY AND POPULATION ON VALUES 
AND PRICES. 

Values of commodities are continually changing also. (As 
a result of Chap. I.) 

Prices could be affected according as improvements in produc- 
tion extended to the precious metals or not. p. 278. 



90 

Permanent values depend : 

(i) Improvements in production. 

(rt) Judicious colonization, etc. p. 279. 
(2) Extension of International Trade. 

(a) By means of Free Trade, p. 280. 

THESE TENDENCIES ARE COUNTERACTED. 

Cost of production in agricultural industry increases 
with every increase of demand, while cost of protkiction 
in manufacturing industry deci'eases. p. 281. 

Crude materials form too small a part of manufactured articles 
to have a decided effect. 

Manufactured articles fall in exchange value. Manu- 
factured articles fall in money price (for money is 
product of mine). 

State of population and agricultural skill may interrupt this 
tendency, p. 282. 

Fluctuations in value and prices: these are much less 
extreme than formerly, w^hen communication vs^as less 
rapid. 

Speculators have a useful office, for their operations 
tend to equalize prices, p. 285. 

Their interest coincides with that of the public. When fluctu- 
ations are heightened, the losses fall on speculators themselves. 
p. 287. 

A /(9c«/ scarcity may be aggravated. 

The operations of corn-dealers are beneficial to poor by thus 
equalizing the price. 

Chapter III. 

INFLUENCE OF PROGRESS AND POPULA- 
TION ON RENTS, PROFITS AND WAGES. 

Case I. Population increasing, capital stationary. 

Consequences: Wages will fall-, laborer suffers; capitalist 
profits; to gain larger quantitj' of food, agriculture is driven to 
worse land and hence rent rises, p. 292. 



91 

A rise of rent is inevitably consequent upon an increased 
dem;ind for agricultural produce, when unaccompained by in- 
creased facilities for its production, p. 293. 

Case 2. Capital Increasing, population stationary. 

Consequences: Wages will rise; profits will fall; improved 
condition of laborers may increase the demand for food, then, 
extension of agriculture follows, accompanied by a rise of rent 
p. 294. 

Case 3. Population and capital increasing equally, 
the arts of production stationary. 

Consequences: Demand for food is increased, rent will rise; 
wages will be greater in cost; profits fall. p. 295. 

Case 4. Arts of production progressive, capital and 
p(;pulation stationary, p. 296. 

Consequences: Rates of profits is not raised; capitalists and 
landlords are benefited as consumers. 

In the case of improvements which diminish the cost of pro- 
duction of necessaries of life, if made suddenly, rent will be 
diminished, p. 29S. Money wages would fall, profits would 
rise. p. 302. 

Case 5. Population, capital and arts of production, 
all increasing, p. 304. 

Consequences : If agricultural improvement advances faster 
than population, rent and money wages will fall; profits will 
rise; if population advances faster than agricultural improve- 
ment, eitlier (i) quanity or quality' of food will be reduced, or 
(2) rent and money wages will rise, profits will fall. 

Agricultural impi'overaents are usually gradual. 

Resume: The economical progress of society tends to 
the progressive enrichment of the landlord class, p. 307. 

Chapter IV. 

TENDENCY OF PROFITS TO A MINIMUM. 

The doctrine that competition of capital lowers profits 
by lowering prices is unsound, p. 310. 



92 

Production is limited : — 

(i) By quantity of capital and of labor; and (2) bj the '-field 
of einployment"; /'. e. {a) land of country (d) capacity of foreign 
markets to take its manufactured articles. 

There is always a minimum rate of profit, below which 
an average person will not deem it an equivalent for 
abstinence and risk. p. 313. 

This rate varies in different states of society, according as the 
risks vary. 

When a country has long possessed the means of making a 
great annual addition to capital (that country not having, like 
America, a large reserve of fertile land), it is a characteristic of 
such country, that the rate of profit is habitually within a hand's 
breadth of the minimum, and hence the country on the very 
verge of the stationary' state, p. 315. 

If capital continued to increase at present rate, and none were 
sent out of the country, the minimum would soon be reached. 

THE RESISTING AGENCIES. 

1. The waste of capital in periods of overtrading and 
rash speculation, p. 319. 

2. Improvements in production, p. 320. 

Field of employment is extended ; if laborers people up to the 
improvement, profits will rise. 

Improvements in luxuries do not diminish cost of labor, and 
cannot raise profits, but they tend to lower the minimum itself. 

(a) Cheapness of articles induces to saving. 

(d) People can live on smaller income, p. 321. 

3. The acquisition of any new powerof obtaining cheap 
commodities from foreign countries, p. 322. 

The necessaries of life are procured more cheaply : 

(i) By direct importation. 

(2) By importation of means of producing them. p. 323. 

4. The perpetual overflow of capital into colonies or 
foreign countries, p. 325. 



93 

(i) It does what a fire or commercial crisis would have done. 
It carries off an increase of capital from whicl) the reduction of 
profits proceeds. 

(2) This capital is not lost, but is employed in building up 
colonies, which become large exporters of cheap agricultural 
produce, or in extending the agriculture of older communities. 

In some advanced countries, there is a practical min- 
imum, below which profits will not fall, but will seek a 
field abroad, p. 325. 

Chapter V. 

consequence's of the tendency of 
profits to a minimum. 

1. In advanced countries, the economical argument 
against the expenditure of public monev for really valu- 
able, even though itidustriously unproductive, purposes, 
is greatly weakened, p. 338. 

Capital in poor countries, however, requires the legislator's 
sedulous care. 

2. Emigration is a great benefit, for : 

It diminishes the pressure of both capital and population upon 
the fertility of the land. 

3. The effects of machinery and the sinking of capital 
for a productive purpose are beneficial, p. 330. 

The capital thus used is the surplus which would otherwise 
have gone abroad, p. 331. 

Chapter VI. 
THE STATIONARY STATE. 

The increase of wealth is not boundless; all progress 
in wealth is but a postponement of the stationary state. 
P- 334- 



94 

Even in a progressive state ofcapital, conscientious or pruden- 
tial restraint on population is indispensable. 

Mill thinks the stationary state would be a very considerable 
improvement On England's present condition. 

The best state for human nature is that in which, while no one 
is poor, no one desires to be any richer. 

We require in advanced countries a better distribution. 
This might be brought about : 

(i) By the prudency of individuals ; 

(2) By a limitation on the sum which a person may inherit. 

Society would then exhibit a large number of people free to 
cultivate the graces of life. p. 33S. 

The stationary condition of capital and population im- 
plies no stationary state of human improvement, p. 339. 

There would be a larger scope for mental culture, and novel 
and social progress. 

In addition to just institutions, the increase of man- 
kind must be under the deliberate guidance of judicious 
foresight, p. 340. 

Chapter VII. 

THE PROBABLE FUTURE OF THE LABOR- 
ING CLASSES. 

Mill recognizes no ''class" exempt from bearing their share of 
the necessary labors of human life. 

The two conflicting theories : 

(i) The lot of the poor in all things which alTect 
them collectively should be regulated for them, not by 
them. p. 343. 

This is an idealization. Long before the superior classes 
could be sufficiently improved to govern in this manner, the 
inferior classes would be too much improved to be so governed. 
p. 343,. 



95 

Working men, at least in an advanced country, will not stand 
the patriarchial or paternal system, p. 345. 

Hereafter, advice, exhortation, or guidance must be 
given to the laboring classes as to equals. They must 
be made rational beings. 

All kinds of means are being used to educate the masses, p. 

347- 

This increased intelligence will result in: (i) a still further 

objection to being governed by mere authority; (2) a growth of 
good sense which will result in restraint upon population; (3) 
the opening of industrial occupations freely to both sexes, p. 
348-9- 

Mill believes that the relation of masters and work- 
people will be gradually superseded by partnership in 
one of two forms ; either : (i) associations of the labor- 
ers with the capitalist; or, (2) (finally) association of 
laborers among themselves, p. 353. 

The first form has been exercised to a small extent of giving 
percentage on profits ; e.^'., cornist miners, p. 353. M. Leclaire, 
a painter in Paris, p. 355. 

There have been many successful examples of the 
second form. 

Capital consisted of tools, or small sums collected from sav- 
ings, or loans were made by government. (These latter were 
seldom successful.) p. 360. 

Their rules are very strict. 

At first equal wages were given, but now a fixed min- 
imum is given, and further remuneration is based on 
work done. p. 367. 

A proportion of the earnings is added to the capital yearly. 

P- 370- 

Besides in France, this form has been successful in Germany 
and England. 

Among them : 



96 



1 



The Rockdale Society of Equitable Pioneers. Original 
capital, 2S7. p. 373. 

At first co-operative retail store. Has now many 
branches and a wholesale, department. Later established 
a manufactory, p. 374. 

Cash payment required throughout, p. 373. 

These experiments show how the existing accumulations of 
capital might honestly and gradually become the joint property 
of all productive laborers, p. 377. 

Socialist make the mistake of considering competition as 
baneful and anti-social. 

All competition is for the benefit of laborers by cheap- 
ening the articles of their consumption, p. 378. 

Socialist overlook the natural indolence of mankind, p. 379. 
New general practices beneficial to all and putting laborer and 
capitalist on an equality, must be introduced, p. 380. 



APPENDIX. 

RECENT EXAMINATION PAPERS IN ECONOMICS I. 

Mid-year. 

18S7-1888. 

1. Is productive consumption necessarily consum|)tioii 
of capital? Can there be un])roductive consumption of 
capital ? 

2. Distinguisli which of the following commodities 
are capital, and, as to tliose that are capital, distinguish 
which you would call fixed capital and which circulating. 

A ton of pig iron ; a plougli ; a package of tobacco ; a 
loaf of bread ; a dwelling-house. 

Can you reconcile the statement that one or other of 
these commodities is or is not capital with the proposi- 
tion that the intention of the owner determines whether 
an article shall or shall not be capital? 

3. Suppose an inconvertible paper money to be issued, 
of half of the amount of specie previousl}^ in cu'culation. 
Trace tlie effects (1) in a country carryhig on trade witli 
other countries, (2) in a country shut off from trade with 
other countries. 

4. Explain in what manner the proposition that the 
value of commodities is governed by their cost of [)roduc- 
tion applies to wheat, to iron nails, and to gold bullion. 

5. Explain the proposition that rent does not enter 
into the cost of production. Does it hold good of the 
rent paid for a factory building? of the rent paid for 
agricultural land? 



98 

6. It has been said that wages depend (a) on the |3rice 
of food, (b) on the standard of living of tlie laborers, 
(c) on the ratio between capital and population. Are 
these propositions consistent with each other? Are they 
sound ? 

7. Suppose that 

One clay's labor in the United States produces 10 lbs. of copper. 
" " '' England " 8 " " " 

" " " " United States " 5 " " tin. 

" " " " England " 5 " " " 

Would trade arise between England and the United 
States, and if so, how? 

Suppose that, other things remaining as above, one 
day's labor in England produced 12 pounds of copper, 
would trade arise, and if so, bow? 

8. Explain what is meant when it is said that "there 
are two senses in which a country obtains commodities 
more cheaply by foreign trade : in the sense of value, 
and in the sense of cost." 

9. Arrange in proper order the following items of a 
bank account: Capital, $30,000; Bonds and Stocks, 
$35,000; Real estate and fixtures, $20,000; Other 
assets, $20,000; Surplus, $80,000; Undivided profits, 
$10,500 ; Notes, $90,000 ; Cash, $110,000 ; Cash items, 
$90,000; Deposits, $850,000; Loans, $1,050,000; Ex- 
penses, $5,500. 

Suppose loans are repaid to this bank to the amount 
of $100,000, one half by canceling deposits, one quarter 
in its own notes, and one quarter in cash ; how will the 
account then stand ? 

10. What is the effect of the use of credit on the 
value of money ? Wherein does credit in the form of 
bank deposits exercise an effect on the value of money 
different from that of credit in the form of bank notes ? 

Mid-year, 1888. 



99 



1890-91. 

[Divide your time equally between the two parts of the 
paper'] 

I. 

\_Omit tivo.~\ 

1. "Whether men like it or not, the unproductive 
expenditure of individuals will pro tanto tend to impover- 
ish the commnnity, and only their productive expendi- 
ture will enrich it.'* 

"It would be a greater error to regret the large pro- 
joortion of the annual produce which in an opulent 
country goes to supply unproductive consumption." 

Can you reconcile these two statements of Mill's? 

2. "Hardly any two dealers in the same trade, even if 
their commodities are equally good and equally cheap, 
carry on their business at the same expense, or turn over 
their capital in the same time. That equal capitals give 
equal profits, as a general maxim of trade, would be as 
false as that equal age or size give equal bodily strength, 
or that equal reading or experience give equal knowledge." 
Can you reconcile this statement of Mill's with the doc- 
trine of the tendency of profits to an equality? 

3. How far is it true that a general rise or fall in 
wages would not affect values ? 

4: Suppose a country having a metallic currency to 
issue inconvertible paper to one-half the amount of the 
coin, and trace the effects on prices and on the circulat- 
ing medium (1) in an isolated country, having no inter- 



lOO 



national trade ; (2) in a country having international 
trade. 

5. On the same supposition, trace the effects, in the 
country having international trade, on the foreign 
exchanges, on the course of international trade, and on 
the terms of international exchange. 

6. "If consumers were to save and convert into capital 
more than a limited portion of their income, and were 
not to devote to unproductive consumption an amount of 
means bearing a certain ratio to the capital of the country, 
the extra accumulation would he merely so much waste, 
since there would he no market for the commodities 
which the capital so created would produce." Is this 
true? 

IT. 

[^Answer all.'] 

7. "Capital is not the result of saving; it is not an 
accumulation. Its nature is that it should be consumed 
almost as fast as it is produced. . . . Saving or accumu- 
lation would necessarily defeat the end of its existence. 
How can materials or tools be saved? Answer the 
question . 

8. Explain why rent is not an element in the cost of 
production of the commodity which yields it. 

9. Connect the law of the increase of labor with the 
law of production from land. 

10. What is the effect of gratuitous education for a 
profession on the wages of those engaged in it? 

11. Why does the durability of the precious metals 
give stability to their value ? 



lOI 



12. What are the laws of vaUie applicable to (1) h-on 
ore, (2) watch-springs, (3) wool and mutton, (4) 
patented bicycles ? 

13. How does the rate of interest bear on the price of 
securities ? 

Mid-year, 1891. 

3fid-Year, 1S91-92. 

[^Arrange yoar answers strictly in, the order of the ques- 
tions. Divide your time equally hitioeen the two parts 
of the paper.'] 

I. 

[Omit one.] 

1. Mill says that -'the laws and conditions of the pro- 
duction of wealth partake of the character of jdiysical 
truths. . . . Whatever mankind produces must be pr >- 
duced iu the modes, and under the conditions, imposed 
by the constitution of external things, and by the inherent 
properties of their own bodily and mental structure." Is 
this true of the laws and conditions of production from 
land ? of the laws and conditions of the accumulation of 
capital ? 

2. Of things limited in quantity, it is said that "their 
value depends on the demand and the supply. .- . . But 
the quantity demanded is not a fixed quantity, even at 
the same time and place ; it varies according to the value ; 
if the thing is cheap, there is usually a demand for more 
of it than when it is dear. The demand therefore partly 
depends on the supply. But it was before laid down 
that the value depends on the demand. From this con- 
tradiction, how shall we extricate ourselves ? How solve 
the paradox, of two things, each depending on the 
other.?" 



I02 



3. "Every fall in profits lowers in some degree the 
value of things made with much or durable machinery, 
and raises that of things made by hand ; and every rise 
in profits does the reverse." Explain. 

4. Is there any inconsistency between the propositions 
that the vahie of money depends, 

(1) on its cost of production at the mines ; 

(2) on its quantity ; 

(3) on the expansion and contraction of credit ; 

(4) on tlie terms on which a country gets its imported 
commodities. 

5. Explain Mill's reasoning (1) as to the manner in 
which an issue of inconvertible paper money drives specie 
out of circulation ; (2) as to the manner in which, under 
a double standard, one metal [which one?] disappears 
from circulation. Are the results, in fact, brought about 
in the manner described by Mill? 

6. Explain carefully how a decrease in the foreign 
demand for a country's exports causes loss to those who 
consume its imports. 

11. 

[Answer all, briefly.^ 

7. Does nature give more aid to man in one kind of 
industry than in another ? 

8. Are there grounds for saying that the necessity of 
restraining population is confined to a state of inequality 
of property ? 

9. What are the advantages and disadvantages of a 
currency composed of specie, as ^compared with one of 
equal amount composed of inconvertible paper money? 



103 

10. What are the laws of value applicable to (1) 
silver bullion ; (2) iron nails ; (3) wool ; (4) eighteenth 
century furniture ? 

11. Does the benefit of foreign trade consist in its 
affording an outlet for the surplus produce of a country? 

12. Mill says the superiority of reward in certain oc- 
cupations may be the consequence of competition, and 
may be due to the absence of competition. Explain 
which exj)lanation holds good of the high wages (1) of 
laborers in whom mucli confidence is reposed ; (2) of 
laborers in disagreeable employments ; (3) of laborers 
Avhose education has been expensive. 

13. What is the nature of the remuneration received 
by (1) a manufacturer on a large scale ; (2) an indepen- 
dent artisan ; (3) a farmer tilling land which lie has 
leased at a fixed rent ; (4) the owner of a building who 
receives rent from those usiug the building, 

Mid-Year Examination, 1892. 

FINAL. 

1886-1887. 

DIVISION A. 

1. If taxes levied on the rich cause a diminution in 
their unproductive expenditure, would that in any way 
affect the employment offered for labor? Discuss fully. 

2. What j)rinciple does Mr. Mill fui-nish by which the 
respective shares of labor and capital are determined? 
Has his Wages-Fund Theory any connection with his 
exposition of the dependence of ''profits" on Cost of 
Labor ? 

3. In discussing the distribution of the product, why 



I04 

is it that the relative shares of labor and capital can be 
discussed independently of rent? Would an increase of 
rent affect the share of labor or of capital? 

4. Why is it that city banks make a greater use of the 
deposit liability than of the note liability? Why is the 
fact just the reverse with country banks? 

5. State fully the differejice between Cost of Labor and 
Cost of Production. Would a decrease in Cost of Pro- 
duction affect Cost of Labor in any way? 

6. If the returns, and consequently wages, in our ex- 
tractive industries were to decline, how would the course 
of our foreign trade probably be affected? 

7. Explain carefully how, and under what conditions, 
Keciprocal Demand regulates Normal Value. 

8. How do you reconcile the doctrine of comparative 
cost in internntional trade with the fact that a merchant 
regulates his conduct by a comparison of prices at home 
with prices abroad ? 

9. Explain how a tax on "profits" may fall either (1) 
on the laborer, or (2) on the landlord. 

10. Discuss the argument that protection raises wages. 

11. Is the custom-duties on sugar economically justi- 
fied? 

DIVISION B. 

1. Suppose the price of silver to rise to such a point 
that the ratio of silver to gold would be 15 to 1, what 
chano-e would take place in the money at present in use 
in the United States ? 

Is such a change probable ? if so, why ? if not, why not ? 

2. State the essential differences between the coinage 
acts of 1792, 1834, and 1878. 



CONTENTS. 

Vol. I., Book I. — Production. 

CHAPTER PAGE 

I. The Requisites of Production ... 3 

II. Labor, AS AN Agent OF Production . . 3 

III. Unproductive Labor ...... ^ 

IV. Capital 5 

V. Fundamental Propositions respecting Capi- 
tal 6 

VI. Circulating and Fixed Capital ... 10 
VII. On What depends the degree of Productive- 
ness of Productive Agents . . . . II 
VIII. Co-operation, or the Combination of Labor 12 

IX. Production on a Large and on a Small Scale 13 
X. Causes affecting the Efficiency of Produc- 
tion 13 

XI. The Law of the Incrkase of Labor . , 14 

XII. The Law OF the Increase OF Capital . . 15 

XIII. The Law of the Increase of Production from 

Land 16 

XIV. CoNSEquENCES of the Foregoing Laws . . 18 

Book II. — Distribution. 

I. Property 20 

II. Property Continued . . . . . 23 

III. The Classes among Whom Produce is Distri- 

buted ... 25 

IV. Competition and Custom . . . . .25 
V. Slavery 26 

VI. Peasant Proprietors ..... 26 

VII. Peasant Proprietors Continued ... 27 

VIII. Metoyers 27 

IX. Cottiers ........ 27 

X. Means of abolishing Cottier Tenancy . . 28 
XI. Wages 28 

XII. Popular Remedies for Low Wages ... 31 



XIII. Remedies for Low Wages furthur consid- 

ered ......... 

XIV. The Differences of Wages in Different em- 

ployments . . . . 

XV. Profits 

XVI. Rent . . . . . . . 

Book III. — Exchange. 

I. Value 

II. Demand and Supply, in their Relation to 
Value 

III. Cost of Production, in its Relation to Value 

IV. Ultimate Analysis of Cost of Production 
V. Rent in its Relation to Value 

VI. SUMiMARY OF THE THEORY OF VALUE . 



32 

33 
36 

38 



41 

42 
44 
45 

48 

50 



Vol. II. 



VII. Money . . 51 

VIII. The Value of Money as^ Dependent on De- 
mand AND Supply ...... 52 

IX. The Value of Money as Dependent on Cost 

of Production 54 

X. A Double Standard and Subsidiary Coins 56 

XI. Credit as a Substitute for Money . . 57 

XII. Influence of Credit on Prices • • • 57 

XIII. An Inconvertible Paper Currency ... 60 

XIV. Excess of Supply 62 

XV. A Measure of Value 64 

XVI. Some Peculiar Cases of Value ... 65 

XVII. International Trade 66 

XVIII. International Values . • . . . 69 

XIX- Money as an Imported Commodity . . . 72 

XX. The Foreign Exchanges 73 

XXI. The Distribution of the Precious Metals 

through the World ..... 76 

XXII. Influence of the Currency on the Exchanges 

AND ON Foreign Trade . . . . . 79 

XXIII. The Rate of Interest 81 

XXIV. The Regulation of a Convertible Paper 

Currency ........ 82 



Ill 



XXV. The Competition of Different Countries in 

THE same Market 84 

XXVI. Distribution, as affected by Exchange . 86 

Book IV. — Influence of the Progress of Society on Pro- 
duction AND Distribution. 

I. General Characteristics of a Progressive 

State of Wealth 89 

II. Influence of the Progress of Industry and 

Population on Values and Prices . . 89 

III. Influence of the Progress of Industry and 

Population on Rents, Profits and Wages 90 

IV. Tendency of Profits to a Minimum . . 91 

V. CoNSEqUENCES OF PROFITS TO A MINIMUM . 93 

VI. The Stationary State 94 

VII. The Probable Future of the Laboring 

Classes . 94 

Appendix — Examination Papers. . . . . .97 

Index ........... iv 



^y 



INDEX. 



Clearing House 

Communists 

Cost of Production. . . . 

Crisis 

Domestic Manufactures. 

Fisheries 

Gas and Coke 

Government Loans. 

Greshain's Law 

Individual Property. 

Interest 

Law of Diminishing Returns. 

" International Demand. 

" Malthus. . . 
Legal Coins in the U. S. 
Margin of Cultivation. 

Mines 

Money Wages. 
Multiple Standard. . 



PAGE. 

Mutton and Wool, like Gas. 
New Exports, Effects of. . 
Non-competing groups. . . 

Patents 

Premium. 

Price, Definition of. . . 
Productive Consumption. . 
Real Wages. . . . . . 

Rem.edies for Overpopulation. 
Rule for Determining Trade. 

Shipping Point 

Socialists 

Stationary State 

Unproductive Consumption. 
Use, Definition of. . . . 
Value, Definition of. . . j 
Wages Fund Theory. . . 
Wealth, Definition of. . 



LR6JL78 



